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The Advantages of Different Types of Mortgage
Lenders
What kind of lender is "best?"
If you ask a loan officer, "What kind of lender is best?" it is going to be
whatever kind of company he works for and he will give you a list of reasons
why. If you meet the same loan officer years later, and he works for a different
kind of lender, he will give you a list of reasons why that type of lender is
better.
Realtors will also have differing opinions, and their opinions have changed over
time. In the past, it seemed like most would often recommend portfolio lenders.
Now they usually recommend mortgage bankers and mortgage brokers. Most often
they direct you to a specific loan officer who has demonstrated a track record
of service and reliability.
This article discusses the advantages and disadvantage of different types of
institutions, not the individual loan officers. However, it is often more
important to choose the correct loan officer, not the institution. The loan
officer has many responsibilities, one of which is to act as your representative
and advocate to the lender he works for or the institutions he brokers loans to.
You want someone who has proven dependable and ethical in the past.
Regarding the institutions, the truth of the matter is that each type of lender
has strengths and weaknesses. This does not even take into account the variety
of other factors that influence whether a lender is "good" or "bad." Quality can
vary, depending on the loan officer, the support staff, which branch or office
you are obtaining your loan from, and a variety of other factors.
PORTFOLIO LENDERS
Savings & Loans are quite often portfolio lenders, as are some banks. Portfolio
lenders generally promote their own portfolio loans, which are usually
adjustable rate loans. They will often pay more compensation to their loan
officers for originating a portfolio product than for originating a fixed rate
loan. You may also find that they are not as competitive as mortgage bankers and
brokers in the fixed rate loan market.
However, it is often easier to qualify for a portfolio loan, so borrowers who
may not qualify for a fixed rate loan may be able to obtain a loan from a
portfolio lender. A borrower may be able to qualify for a larger loan from a
portfolio lender than he could obtain from a fixed rate lender.
Portfolio lenders also can serve as "niche" lenders because certain things are
more important to them than meeting the more standardized underwriting
guidelines of a mortgage banker. An example would be a savings & loan which is
more concerned with an individual's savings history than being able to fully
document income, among others things.
If you apply for a loan with a portfolio lender and you are declined, you
usually have to start the process over with a new company.
MORTGAGE BANKERS
If we are talking about the larger mortgage bankers, you can count on them
having several strengths. For the biggest ones, you will recognize the "brand
name."
Usually, they are much better at promoting special first time buyer programs
offered by states and local governments, that have lower interest rates and
costs than the current market rate. These programs are often available to buyers
who have not owned a home in the last three years and fall within certain income
guidelines.
Mortgage bankers may have problems just because they are "too big" or they may
operate like well oiled machines.
If you are buying a home and you need a VA or FHA loan and the development you
are buying in has not yet been approved, they will be better at getting it
approved than other lenders.
If your home loan is declined for some reason, many mortgage bankers allow their
loan officers to broker the loan to another institution. However, because your
loan officer is so used to promoting the company's product, he may not be
familiar with which institution may be the best one to submit your loan to.
Another reason is because wholesale lenders do not expect to get many loans from
direct mortgage bankers, so they do not expend much marketing effort on them.
BANKS and SAVINGS & LOANS
Their major strength is that you will recognize their name. In addition, they
will usually be operating as a mortgage banker. a portfolio lender, or both, and
have the same weaknesses and strengths.
MORTGAGE BROKERS
The major strength of mortgage brokers is that they can shop the wholesale
lenders for which lender has the best rate much easier than a borrower can on
his own. They also learn the "hot points" of certain wholesale lenders and can
hand-pick the lender for a borrower which may be unique in some way. He will be
able to advise you whether your loan should be submitted to a portfolio lender
or a mortgage banker. Another advantage is that, if a loan gets declined for
some reason, they can simply repackage the loan and submit it to another
wholesale lender.
One additional advantage is that mortgage brokers tend to attract a high number
of the most qualified loan officers. This is not universal. Mortgage brokers
also serve as the training ground for those just entering the business. If you
have a new loan officer and there is something unique about you or the property
you are buying, there could be a problem on the horizon that an experienced loan
officer would have anticipated.
A disadvantage is that mortgage brokers sometimes attract the greediest loan
officers, too. They may charge you more on your loan which would then nullify
the ability of the mortgage broker being able to "shop" for the lowest rate.
WHOLESALE LENDERS
Borrowers cannot get access to the wholesale divisions of mortgage bankers and
portfolio lenders without going through a broker.
When Realtors or Builders Recommend a Lender
If your Realtor or builder make a suggestion for a lender, be sure to talk to
that lender. One reason Realtors and builders make suggestions has to do with
the fact that they have regular dealings with this lender and have come to
expect a certain amount of reliability. Reliability is extremely important to
all parties involved in a real estate transaction.
On the other hand, a recent trend in mortgage lending has been for real estate
companies and builders to own their own mortgage companies or create "controlled
business arrangements" (CBA's) in order to increase their profitability. These
mortgage brokers sometimes become used to having what is essentially a "captured
market" and may not necessarily offer you the lowest rates or costs.
Some real estate companies also offer different types of incentives to their
Realtors to recommend their company-owned mortgage and escrow companies or
lenders with whom they have CBA's. Dealing with one of these lenders is not
necessarily a bad thing, though. The builder or real estate company often feel
they have more ability to expedite matters when they own the company or have a
controlled business relationship. They cannot usually influence the underwriting
decision, but they can sometimes cut through "red tape" to handle problems or
speed up the process. Builders are especially forceful on having you use their
lender. One reason is that there are certain intricacies in dealing with new
homes. If you use a loan officer who usually deals with refinances or resale
home loans, he may not even be aware of how different it is to close a mortgage
on a new home and this can lead to problems or delays.
It is in your interest to know if there is any kind of ownership relationship or
controlled business arrangement between the real estate or builder and the
lender, so be sure to ask. Do not automatically disqualify such a lender, but be
sure to be more vigilant on getting the best interest rate and the lowest costs.
CONCLUSION
Make sure to do a little shopping for yourself. By knowing the interest rates of
the market and making sure your loan officer knows you are looking at rates from
other institutions, you can use that as leverage to make sure you are obtaining
the best combination of service and lowest rates.
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