Over the last 5 years, there has been a growing trend of mortgage professionals electing to work for mortgage companies who operate as banks rather than brokers. In fact, to my knowledge, my firm is one of the only new brokerages to emerge in our community since the mortgage meltdown in 2008. Did my decision to start a business on the minority model doom me from the start? Or is our against-the-tide approach in the lending industry exactly what clients want amongst a crowded selection of impersonal, mega-corporate banks?
All sensationalism aside, the difference between a banker and a broker is simple: bankers lend their own money and brokers do not. However, a growing number of “direct mortgage lenders” actually don’t have their own money either, but rather a line of credit from a larger funding source who ultimately buys the loan from them only days after the loan closes. So they’re essentially still more a broker, like myself, than an actual bank. A common misconception is if you go straight to the company who has the cash to lend then you can get a better deal. This is simply not true.
So who offers better rates? Brokers, like myself, tend to work with “wholesale” banks that don’t sell directly to the consumer. As a result, their only marketing expenses are compensating the brokers that deliver them business. “Retail” banks, on the other hand, spend gobs of money advertising and having access to the consumer directly. While they don’t pay brokers in order to acquire business, they have tremendous other overhead expenses for which to account. I often wonder how much it costs the country’s 4 largest banks to operate their 20,000 retail branch offices! The rates we offer at Blue Waters are very competitive, and most cases lower, when you compare them to other mortgage outfits. Case in point, I recently received a referral from a VP of a large bank to help his brother refinance. I asked him why he would refer it to me instead of the company who signs his paycheck. He said, “your rates are way better than ours. I’m looking out for my little bro.”
And who offers better loan program options? One often assumes that if a bank lends their own money, they get to make their own underwriting rules. While this is true in very few instances with jumbo and sub-prime loans, the more common reality is banks and brokers alike are ultimately originating loans that are sold to investors (ie-Fannie Mae, Freddie Mac, FHA, etc.). As such, we are all following the same guideline rules when working to get your loan approved. Furthermore, a bank has their single menu of loan rates and options. A broker has a multitude of different banks they do business with, so my array of options is unparalleled when comparing to a traditional bank.
The rates and programs of brokers and bankers are certainly characteristics a consumer should consider, but in the end it’s the service level that matters most in your mortgage professional. I can’t universally say brokers have better service than banks, but I can say this: I am completely dependent on my client’s satisfaction of and trust in my company in order to stay in business. I’m not so sure a multi-national, diversified, conglomerate, too-big-to-fail bank has the same mentality. To me, service is more than simply doing what the client asks; it’s about educating and empowering clients to help them make sound financial decisions for themselves.
In many regards, my work is similar to that of a teacher. It is no coincidence that I recently had the opportunity to spend a Spring Semester as an adjunct professor at Folsom Lake College teaching Real Estate Principles. Doing so was a fantastic opportunity to give back to my small community, and also a reinforcement of my desire to teach students and clients alike.
So when choosing your financial professionals I hope that you will keep Dave Ramsey’s (America’s most well-recognized and respected finance commentator) advice in mind, “when getting help with money, you should always look for someone with the heart of a teacher, not the heart of a salesman.”