In my second book, Mortgages 101, I spent considerable
time explaining the basic differences between a
mortgage broker and a mortgage banker. I spent as much
time explaining the similarities while trying to
answer the question, "Who's better for me, a broker or
a banker?"
I've been both, a broker and a banker. There are some
distinct differences, but maybe the general public
doesn't know the most important differences. After
all, it's still a super-secret gig, this money-lending
thing, right?
The most common difference you hear from brokers is
that they "shop" your mortgage around to find the best
rate. That's true. But another common claim is
something such as, "We're signed up with over 100
lenders and we find the best rate and terms
available!" That might be true.
I don't know if there are 100 mortgage lenders and if
there were I don't know of a mortgage company that
would sit down and take the time to actually fill out
all of the applications. Didn't know that? Mortgage
brokers, or more particularly the principal mortgage
broker in that company must complete a series of
applications, credit reviews, licensing requirements
in addition to any online paperwork or background
checks.
Lenders who use mortgage brokers to distribute their
product are called "wholesale" lenders. Wholesale
lenders let the broker do the heavy lifting of find
the loan in the first place and in return offer the
broker a reduced loan price that he or she marks up to
retail level. That's the loan price quoted to the
consumer.
And each lender a broker does business with must have
the authority to do business with the wholesale
lender, and they do that by applying. Much as the
consumer would do when applying for a home loan.
All that said, I don't see any need for 100 lenders. I
know I'll get email on this but I also don't believe
it. Okay, even if a broker did have 100 active
licenses with wholesale lenders do you really think
they "shop" those 100 lenders each time an application
comes through? Of course not. Instead, a broker or
loan officer - already familiar with the companies
they like to do business with - reviews the rate
sheets from their favorite three or four wholesale
lenders.
It's common for a broker to have a favorite government
lender for FHA and VA loans, another for conventional
product and finally a favorite or two from their
sub-prime lenders. When a broker gets an application,
they don't pore through 100 rate sheets. No, they're
more likely to review the three or four they're used
to doing business with and pick the best one. No, you
weren't shopped to 100 lenders, but you still got a
great deal.
Another good reason to pick a broker is that because
they have access to so many lenders they might also
have access to a particular loan program not available
at all the other lenders. While most lenders are alike
in the types of product they offer, a few specialize
in certain niche areas, and the broker would have
access to that product.
A disadvantage a broker has is losing control of the
loan once it goes for loan approval. At that point,
their loan application is one of hundreds or even
thousands that must get underwritten, approved and
loan papers delivered.
As a broker, I would have to call my account executive
and ask how my loan was doing or even log onto the
lender's website to check status. Of course that only
works when the lender in fact updates the website.
As a banker, any time there was a problem I was right
smack in the middle of it getting it fixed. If a loan
were being held up, I would know about it almost
immediately when the underwriter would call my
processor or me. When a problem arises with a loan
through a broker it could take precious hours, even
days, to find out exactly what's going on. This is
especially true if the broker doesn't generate a whole
lot of loan volume every year and may not carry as
much stature with the wholesale lender as someone who
might deliver 30-40 loans per month. I'll get more
nasty emails about that comment but trust me it's
true.
Should you choose a broker over a banker? Or is a
banker the superior choice? There are advantages to
either just as disadvantages. What would I pick if I
were buying or refinancing this very moment? That
depends. If were a broker, I'd use me. If I were a
banker, I'd also use me. The answer is that either
makes a good choice. It's the person you're dealing
with that's important, not the title on their business
license.
Learning How Your
Credit Scores
Credit scores still just don't quite add up for many
consumers and that could mean they won't make the
grade when it comes to getting their mortgage
application approved at the best rate -- or at all.
In 2003, credit scores were a mystery to nearly 70
percent of those in households with incomes under
$35,000, according to the Consumer Federation of
America's "Credit Scoring Report".
Most, approximately 65 percent of consumers still
didn't fully understand credit scores in 2004, when
San Francisco-based Providian Bank joined the
federation to produce "Most Consumers Don't Understand
Their Credit Scores".
And now in 2005, many consumers have yet to grasp,
when it comes to landing a mortgage, and a host of
other financial services, you are what you score.
In just one example of how clueless consumers are
about credit scores, the vast majority of them remain
unaware that the higher the credit score, the lower
the mortgage rate, according to a GMAC Mortgage
national telephone survey of 1,057 households this
year between May 13 and May 16.
GMAC Mortgage and other lenders want you to get it,
especially if you have a high score, so they can write
you a loan and make money. You want to know your
credit score because it will save you money.
That's key in a hot housing market where a lower rate
can make the difference between being able to afford
monthly mortgage payments -- or not -- and landing a
loan. If your score is low and you know it, you can
improve it (over time) and land a loan you might not
otherwise receive.
Minneapolis, MN-based Fair Isaac, the company that
pioneered credit scoring with its leading "FICO" brand
(there are others), breaks it down by revealing the
principal and interest payments on a $150,000,
30-year, fixed-rate loan, with mortgage rates from
early August and FICO scores.
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