All Mortgage Brokers are bad, they are the Devil. Now wait, who said that? Ah, rumors and in my opinion, are from those that don't fully understand the ins and outs of the mortgage business. A topic regarding mortgage brokers and mortgage bankers that has been grossly argued based on opinion, always seeming to fail in pointing out hard core facts.
Just recently, I read a blog on Active Rain that stated that there was a hidden agenda by banks to put brokers out of business. What irritated me was this was based on opinion, but never mentioned. Here is what was written on this same subject.
"Are mortgage brokers being squeezed out of the business as, one by one, the nation's largest lenders move to block them from offering their loans?"
This authors answer?
"You bet they are."
Picture from www.istockphoto.com
Here is another part of this person's blog that is very opinionated, but sounds like fact because of how it's stated, because they are a good writer. Here is what was stated....
"Oh, sneaky lender, you. I almost forgot you have other ways of getting rid of mortgage business." And then they include a list to defend their opinion : They basically said, banks can :
- raise credit scores
- increase underwriting requirements
- make getting an appraisal more difficult
- slow down the approval process (major opinion based on my opinion by Jeff Belonger)
- raise rates (huh? This is done through Wall Street. It's called coupons and risk pricing - each investor has different rates - this has to be one of the worst statements I have read without an explanation)
Now, before I go over my thoughts and opinions, a little about me : (short resume)
- Over 16 years in the mortgage industry.
- Worked for big companies such as Norwest Mortgage, #1 when I worked there (now Wells Fargo) and Columbia National Mortgage, #51 when I worked there (bought out by American Home Mortgage, and then closed shop).
- Over half of my career, I have worked for the mid sized mortgage bankers, which I will describe below.
- I have worked for 2 brokers in my career
- I have worked as a manager of an office, overseeing 10 loan officers.
- I was a small partner of a company, which allowed me to review the companies books, truly understanding how a company is operated and what it takes.
- I now run a net branch.
- Lastly, I was privy to many banks portfolio's on Wall Street in 2008, looking at the non-performing loans that totaled in the 100 billions. So I can see what failed and why.
First we need to define the different types of lenders and their roles :
- Bank - One who controls their own money and that is FDIC approved. This could be such large lenders as Bank of America, Wells Fargo, Countrywide, and others. These companies can change their guidelines at any time. But here is a key point. Even though they service their own mortgages or those bought by brokers, they still need to make sure that loan is sell-able on Wall Street. Please read : How mortgages work - Investor Style
- Mortgage Banker - aka Correspondent Lender (by Rhonda Porter) - One that underwrites their own loans, closes in their name, and uses their own funds. They typically sell the loan about 15 days after the loan is closed. They can also act as a broker if they don't want to take full risk. And just a fyi, Bankers usually have 5 to 10 investors that they can sell their loans to. Jack Guttentag, a well-known mortgage blogger & educator, with 25 + years experience in mortgages. What is a correspondent lender?
- Mortgage Broker - One that has the least amount of risk on the table. Yes, they have many lenders that they can sell to, and they use this as their main selling point. But again, so does a mortgage banker.
Let's go over the basic misconceptions based on my opinion and for the fact that I interviewed 23 loan officers in the last week about this same subject.
Who takes greater risk? The bank takes the greatest risk, because they are servicing the loan. The mortgage banker is next, because the bank they sell to can say that they don't like the loan even after the banker closes the loan on their own warehouse line. Or if the loan would would default in the next 2 months, the banker has to buy back the loan. The broker in most cases, gets to wash their hands of the loan once the bank buys it from them, which is at time of settlement. The broker even gets their check at that moment also for services rendered.
Banks can raise credit scores to hurt the broker from doing business. This person failed to state that this goes the same for the mortgage banker and the bank themselves. Yes, some banks might have a slight difference with credit scores for their retail branches. But it goes back to risk. Keep in mind, even these banks sell pieces of that mortgage on Wall Street. Just because the bank services that mortgage, doesn't mean they own the whole thing.
Banks making the appraisal more difficult. Again, this was based on an opinion. This could be a whole blog on its on. The main theme again, risk. That bank needs to make sure that this loan can be sold on Wall Street.
The Banks are raising rates to get rid of mortgage brokers - How can one make this statement? Very misleading. As mentioned, we all get basically the same money from the same place. No matter if you are a broker, banker, or bank. Yes, some rates vary from investor to investor. But the brokers get the same pricing as a banker or even your large mortgage banks do. This statement is very false in my opinion. Please read my comment to Rhonda Porter for more on this. My Comment
I have 10 to 20 lenders that I shop with to get you the best rate.... - This is more commonly stated by mortgage brokers, to make you think that they can get you the best deal with the lowest rates. Well, a mid sized mortgage banker can do the exact same thing. What defines a mortgage banker is that they actually underwrite the loan, meaning that they have more control. They don't have to rely on someone else that could say no at any time. PS.. no matter who you are, everyone gets the money from the same place, just through different channels.
Picture below from www.istockphoto.com
Summary : The biggest argument of lately is that mortgage brokers are being forced out of the industry. That can be ones perception and opinion, but reality must set in. Again, who takes the greater risk?
Overall, yes, mortgage brokers have been at least 50% of all business done in the last 2 decades or so. And yes, banks have made money because of this. How do you think Countrywide was propelled to the number 1 lender in America? More than 50% of their business came from mortgage brokers. But why are banks tightening? Based on past greed by banks with major losses and the ever changing economy.
The bottom line, don't let opinion that sounds factual fool you, and should be based on reality. And again, this is not just my opinion, but the opinions of my peers in the mortgage industry, both as brokers and bankers. Maybe the questioned should be, Mr. Broker, why don't you want to be a banker? Possible answer? Because it costs more money and there is a lot more risk. The main theme that was misplaced was "Risk."
For more opinions on this subject, please read :
- FHA Loans - USDA Loans - VA Loans -
- Energy Efficient Mortgages -
- Conventional Loans - 203 k loans -
- Mortgages -
Experience & Knowledge at its BEST !!!
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For more information on FHA loans, please go to this link. The FHA Expert
For more information about the 2008-2009 Tax Credit for First Time Homebuyers : 2008 Tax Credit
For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!
Copyright © 2009 by Jeff Belonger
