Lending money and assembling a loan file to get the money are two separate things. People who assemble your loan file are all called "loan officers." You can hire and pay the loan officer at the bank or hire an independent loan officer (mortgage broker) to complete this task for you.
Example: Take your car to the dealer (bank) or to an independent mechanic (broker).
Banks lend their money and only offer loan programs that they have. They do not shop various lenders and do not have the flexibility to go to a diffferent bank to get money if your loan is denied.
Bankers are loan officers who work for mortgage companies that offer mortgage loan products only. Bankers can only offer their loan products and cannot shop your loan with other lenders unless they are also licensed as a mortgage broker.
Mortgage brokers can go to just about any bank or mortgage company allowing them to find the best terms. Brokers are required to meet federal and state licensing requirements in order to have the abllity to assemble (originate) a mortgage loan file.
Who has the best rates? Brokers do. Banks offer lower rates (wholesale rates) to the broker in an attempt to get their business. The cost of originating your loan is the difference. Some banks show all of the fees but mainly banks will offer a higher rate with reduced fees. To read more on this subject click here.
I am both a banker and a broker so there is no incentive for me to promote one over another. You can get great service or lousy service from any of the above. It really depends on the individual loan officer and how they handle their business.
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Your example (and hey, why not use the car industry) is great!!
Carla - Thanks! I thought it made it easier to understand too
I re-blogged
Carla - Thanks!
Nevin, This is why it is so important to find a knowledgeable banker / broker who can get the job done quickly, efficiently and will do what it takes to ensure success. You are THAT person! Great post!
Thanks for the explanation, Nevin which I found via Carla. Even I get confused by all this.
Wanda - Aw, thank you! : )
Jane - You're welcome and I hope it proved helpful!
Great Explanation Nevin! There is NO Doubt that a client would get exceptionally great service from you.
Thanks for the explanation and including this in my outside blog! Very perfect material for my readers!
Simple, yet important information/distinction. Does this mean brokers as we know it won't die?
Amy - Thanks!
Renee - You're welcome!
Jason - Hard to say. They are pushing really hard to get rid of them by enacting huge and unfair restrictions. Guess we will all become correspondent lenders soon!
Nevin - So I thought. I had heard years ago that banks had been trying to do such for quite sometime. Their wish seems closer to a reality than ever. Bad for the consumer as a whole, in my mind. Then again, some brokers were bad for the consumer. Bad apples wear many colors & distinctions.
Hope all is well, my man.
Jason - The difference of today is that a broker must now have high credentials to get and keep their license. Criminal background checks, good credit, educational requirements etc. where in years past many states didn't even require a license for loan origination. These new requirements have already weeded out many undesirables and although a day late dollar short we needed regulation in place.
Sorry to hijack, but aren't there net worth requirements as well? That may kill even the most reputable & educated Ma & Pa shop.
Yes. CRMLA in CA is 250,000, broker is 25,000 and real estate salesperson with an MLO endorsement has no requirement. Each state is different.
Great job explaining the differences here Nevin. Anyone who needs further explanation should give you a call. You know your business like no other.
Well thank you Nevin, I never really completely understood the difference... well done!
"It really depends on the individual loan officer and how they handle their business."
Ain't that the truth!
*reblogged*
Nevin - you hit this perfectly and cut right to the chase!
Nevin: It was always my impression that the loan officer took the loan application and had all the initial documents signed. Then, after that, the loan officer usually had no clue about what was going on. It was the loan processor, in a completely different department, who assembled the loan file.
After the file was complete, the loan package then went to the underwriter... who either approved the loan, rejected it, or asked for more information.
Also.. a mortgage broker is a middle-man. As a middle man, they have to be paid... which means that, although with most mortgage brokers, you have a greater variety of loans to choose from... the fact that they add a step to the process, and need to be paid for what they do, adds another cost to the process. So... using a mortgage loan broker... would make the loan more expensive. That... is just common sense.
Nevin -
Karen has a point.
But mortgage brokers are usually better at what they do. They usually get paid more than bank loan officers. The talent follows the money.
Hi Nevin - this was a great explanation, clear and concise. I've saved it to give to clients when appropriate. Thanks!
Nevin this is some great advice with who does what, thanks for sharing, I diffidently learned something new today :)
Karen – Hi there! I see you are an avid reader of my blog posts. Thank you!
To answer your comment: I used the word Assemble to keep it simple for customers to understand. You are correct that the processor would then assemble the file and submit to the lender after the loan officer takes the application.
Your statement:
It was always my impression that the loan officer took the loan application and had all the initial documents signed.
Then, after that, the loan officer usually had no clue about what was going on.
is precisely what you find at a large bank and credit union: a clueless loan officer. Your statement leads me to believe this is the type of service that your loan officers have been providing you and your clients. If you use a knowledgeable broker you won’t have this experience.
Your statement:
Also.. a mortgage broker is a middle-man. As a middle man, they have to be paid... which means that, although with most mortgage brokers, you have a greater variety of loans to choose from... the fact that they add a step to the process, and need to be paid for what they do, adds another cost to the process. So... using a mortgage loan broker... would make the loan more expensive. That... is just common sense.
Whether you are a broker a bank loan officer or mortgage loan officer they are all still loan officers no matter what title you use. Therefore there is no middleman and there is no added step. The “middleman” idea is an advertising ploy created by banks to lure business away from brokerages.
It is against the law for a processor to take a loan application, negotiate or lock an interest rate or advise a client of loan options. Therefore who will perform this task? The loan officer will. Banks have loan officers, mortgage companies have loan officers and brokers are also loan officers. A broker doesn’t prepare a file and then give it to a bank loan officer. If this were the case your statement about an added cost and step would be true.
If you consider anybody who takes a loan application a middleman then all loan officers are middlemen regardless if they are brokers, bankers or the banks loan officer.
Let’s talk cost:
If I decide to broker a loan instead of banking it: In most cases the rates I get from banks are lower than the rates they offer through their retail division (wholesale rates). On rare occasion a bank will offer something that is not offered through wholesale. The rates are lower than what you can get if you walk into a bank mortgage office.
A broker will raise the interest rate to match retail rates-(much like a supermarket does when they mark up groceries) and receive additional compensation YSP which is used to lower a borrowers closing costs. It used to be that a broker could keep this extra compensation but now Federal law prohibits brokers from pocketing any compensation paid by a lender-it must all be credited toward the borrowers closing costs. Banks do not have to meet this requirement nor do they have to disclose their compensation. If you click ont he link and scroll down half way you can read it for yourself.
Your statement:
So... using a mortgage loan broker... would make the loan more expensive. That... is just common sense.
Since you have a degree in Psychology and were a teacher you know better than anyone that this statement, even without vocal infliction is a form of sarcasm and is meant to mock. I have not attacked you so stop attacking me. I will not tolerate it. You can write your opinions but do so with a little more courtesy.
Craig – thank you sir!
Lee & Pamela – Glad it helped! Thanks for stopping by
Andi – LOL Thanks for the reblog : )
Drew – Thank you. You write great material on your blogs so I’m just following your lead!
Jim – Thank you and nice job understanding cost vs. value, however Karen’s point is not factual.
Lottie – Thanks! I hope you get some benefit from it : )
Carole and Laura – You’re welcome! Have a great day!
I don't even know where to start with my comment so I'll just say - great post and thanks for sharing. I texted you - you'll get it. My cheeks hurt...... oh, and obviously, this went to my outside blog.....
Leesa - Thanks! Check your outside blog...Karen has been copying and pasting her comment on every reblog of my post.
Nevin,
Last year I had a client who started her loan with WellsFargo. They told her she was pre-approved and when I found her the righ home there will be no problem. After submitting the offer it came out that they didn't check that she had a $10,000 gift that would be used as part of the deposit.
To make a long story short we were back and forth for about 6 months without any satisfactory results and ofcourse we lost that transaction. After this she asked me... what do you suggest that I do?
I told her you can go to any bank but since you are asking for my advice I would suggest you go to a loan broker. She did it and we used the $10,000 gift with no problem. The loan Broker locked the rate, which expired before we closed but the loan broker manteined the same rate even when he lost part or the point charged.
I got her 3% for closing cost, she got the Fist Time Home Buyers $8,000
Now they are happy campers!
I like to work with loan brokers that are flexible and you can negotiate with. Ofcourse they charge, they have to make a living. Don't we?
Banks have their own charges too, but they don't negotiate. If we try to negotiate, they siply ignore you.
Loan Brokers are my Real Estate heroes.
Esperanza - I have heard of many similar situations with large banks. If you have a question please call their customer no service number! This is a great story! You should copy it add a pic and make it a blog post : ) Thank you for stopping by and commenting!
Hi Nevin! Well, as you know, I prefer to use brokers--they know what they're doing and their reputations rest on them getting the job done--and as in Esperanza's case, they can just make things work that the lenders don't (or won't).
It's much like my Italian girlfriend and I - I can make basic Italian sauce by a recipe; it's good but, it's not great. My Italian friend can make sauce with no recipe and her eyes closed--each and every time, it's a variance of something else just as spectacular as the last one she made but, different none-the-less. Who is going to want my 'basic' when they can have 'spectacular?!'
Bankers have their own set of, say 5, programs which they are 100% knowledgeable (the recipe); give them any variance and they either can't or won't be able to figure out how to make the process work a large majority of the time these days. Brokers, on the other hand, have MANY programs (no recipe) which they can offer and they can do it at nearly the same upfront cost as the bankers.
HOWEVER, in the long run, with a broker, the chances of it 'happening' are much higher (especialy these days) and the long-term costs is generally LESS for the buyer. Just my two cents!
Our brokers are dwindling, and I'm afraid they may disappear in this area---until the tide changes and the banks present an oppourtunity for people to make the choice of a mortgage broker again. Several of my favorite brokers have now joined banks!
Debe - Thank you. We are a great team and take good care of our clients! I was a broker first and now just happen to also be a banker. It gives me the flexibility to offer the most to my clients and helps ensure that my agents get paid their commission after working so hard on their transaction.
Wanda - I'm afraid this is the wave of the future. If you have a broker who went to a bank then they are most likely very knowledgeable and should still carry a license to shop to other lenders if need be. On a personal note I hope your town is recovering from the tornado. Thanks for stopping by!