Mortgage Broker or Direct Lender?

Posted by: Brian Brady on December 29th, 2008

Happy New Year, HomeGainers!

One of my resolutions this year is to be more active on the HomeGain Blog. While I love to talk about marketing ideas, my self-appointed “title” here, if you will, is resident mortgage guru. I hope to expand my offering to you with a weekly column, more focused on mortgage financing issues that you, the professional real estate agents, face.

I asked my LinkedIn network if they believed that better loan terms were secured by independent mortgage brokerages or direct lending institutions. Here are some of the answers:

Supporting Direct Lenders:

Bill Powell:

As a direct lender (portfolio lender for most of our offering with a few loans being sold to the secondary market for FHA and VA loans) I have seen changes in the common offerings. You might expect me to say “go with a banker” but read on, especially the the advice in last paragraph. We play fair at this company.

At one point the brokers had most everything the banks had with very similar rates. Now it seems the brokers have more speciality type products but with higher rates and fees.

My advice to borrowers is to…shop around and find a lender you a comfortable with who has the product you need at a good rate. That may be a bank or may be a broker depending on your transactional needs and circumstances.

Jay McInnes:

I have had much success with direct lenders as opposed to Brokers. I think the Brokers position works in theory, but a direct lender from my experience holds more weight in the credibility department because they have the in-house relationships in place to make certain situations come to light. Especially if its a tough finance.

Mortgage brokers jump from one door to the next, also dealing with smaller credit unions etc. The bigger banks with the direct lenders have more room to move and manipulate a situation to the benefit of the borrower because they have that leverage when dealing with a large institute.

I put direct lenders up against brokers a number of times at the start of my career. This is why through 100% success of the direct lenders I have decided to strictly recommend them with confidence to my clients. My clients want and deserve the cheapest rate, piece of mind from there lender that they are secure borrowing from them and the best customer service in the market.

Supporting Mortgage Brokers:

Kelly Kilpatrick:

I’ve worked in both wholesale and retail lending as well as for a mortgage brokerage. Usually well-established mortgage brokers can provide better rates and terms for two reasons. 1) Banks typically offer more favorable terms to mortgage brokers because is costs banks less when they don’t have as much direct overhead. 2) Mortgage brokers have access to a substantial number of banks and can pick and choose the best of the best for their clients.

An ideal mortgage originator will be able to clearly communicate to my clients the benefits of particular loan over another, or why it makes financial sense to choose one rate vs. another. He will provide several options for my client to consider.

A good mortgage broker will also have a broad understanding of the current financial market and how that may effect my client’s loan terms.

Above all, a good mortgage broker will keep the buyer’s real estate agent updated to any potential snags or delays. He won’t wait until the last minute or be unavailable to take calls on the day the loan is scheduled to fund.

Amy Terry:

I believe Mortgage brokers are going to be the better bet when searching for a home loan. First, a broker can shop your needs to several different investors and find a loan that works perfect for you. Direct lenders are limited to the products their bank offers. Additionally, I’ve found there is a much higher turn over with direct lenders than brokers and in turn I’ve worked with direct lenders who were less than impressive when it came to knowledge and experience.

Most importantly, as others have stated, you need to work with a lender or broker you feel comfortable with, has a strong reputation, and extensive knowledge of and experience in their field. If you find someone who fits that criteria, whether they’re a broker or lender, you’ll be just fine.

The answer I selected as “best answer” came from Bob Smith:

I think Brokers are a better bet. Even though there are sometimes other fees, I’ve seen them give better deals on bank loans than the banks. You have to look at the whole picture to really see what’s best, not just the interest rate.

My personal experience, and observations of client experiences, is that mortgage brokers will establish and maintain a deeper relationship with their client.

Finally, an answer from an investor, Wilton D. Alston:

When I was aggressively buying real estate for investment purposes, I sought a long-term relationship with a mortgage originator. I did this because I knew I was likely to find other deals and I didn’t want to spend a lot of time educating my lender about me, the types of deals I pursued, and why it made sense to invest in those deals. While shopping around willy-nilly can sometimes yield a good deal, a relationship has the additional benefit–even with slightly higher rates–of allowing for less haggling about terms and conditions.

Do you notice a common theme among all of the answers? That common theme leads me to this conclusion; don’t shop loan terms, shop loan originators. Relationships matter in residential real estate finance.

READ: It’s Impossible To Get The “Best” Rate

While I’d like to say I treat everyone equally, I don’t. Certain real estate agents are lower maintenance than others. They understand enough about lending to know if their clients are being treated fairly and prefer to have a funding source with a “get it done on time” attitude. They have “pre-qualified” a borrower on the phone rather than sending me a name and number. Their contracts are legible and they appreciate the updates we send on e-mail rather than calling me daily.

I call those real estate agents back FIRST because relationships matter.

I’d love to hear about your lending relationships.

PS: In the interest of disclosure, my employer, World Wide Credit Corporation is a correspondent lender and a mortgage broker. Google calls me “America’s #1 Mortgage Broker” so my bias is towards acting as a broker rather than a banker.

Comments

15 Comments on “Mortgage Broker or Direct Lender?”

L J Sutherland

Great Articles!!! Keep-em them coming

L J

December 29th, 2008 at 6:16 pm

dealman

Great article,

I submitted it to BankFiesta.com to share with others, come vote for it!

Cheers

December 30th, 2008 at 9:23 am

Mark Simons

Great blog but ONE other option..find someone who does both: Represents a Direct Lender AND has the ability to shop outside Wholesale Lenders as well..now who could THAT be?

January 2nd, 2009 at 8:10 am

Brian Brady

“now who could THAT be?”

Most correspondent lenders can do both, Mark.

January 2nd, 2009 at 9:05 pm

John Carle

A nice and clear description of the difference between lenders. Thanks for this.

January 3rd, 2009 at 3:08 pm

Lawrence Thorpe

Who cares what loan Officers say, this conversation will go on until time runs out! Customers don’t care. The only thing that matters is a originator (all 3 are originators, banker, mortgage banker and mortgage broker)do the right thing for the customer and you get the closings, referrals, income and status you need to take care of yourself or your family. Customers are always reading every where we talk and you should be selling yourself not what company you work for. Top salespeople like myself always smile where I here this because I know the ones making the money mostly never get involve in this kind of conversation but me with 2-3 more years to go before Fl. move I feel the need. My customers (Broker for 19 years) think I am the best and most would not know what I am other than I am their Mortgage guy. Not banker or Broker just the go to guy when in need.
lastly, all three, Banker, Broker or mortgage Banker are doing billions each in volume so what’s the problem.

February 16th, 2009 at 2:39 pm

Real Estate Taxi

I always respect the opinions of professionals within their field. If I need to have a question answered about mortgages, ill ask a Mortgage Broker. Great Articles!!

June 9th, 2009 at 5:26 am

Arizona Life Insurance

Great article! This information will be a help to my agents as they service their clients with their needs. I have put your blogs in my file for resources. Thanks again.

September 9th, 2010 at 9:38 am

Best Mortgages

Thanks for this.A nice and clear description of the differentlenders.

October 19th, 2010 at 3:17 am

Mortgage Lenders

hi i am mark..Lenders have greater flexibility then brokers about what they can fund. Also, a lot of lenders pay their loan officers off a % in volume and do not have the charge points to make money. A broker has to charge a slight fee (the point) to make money on the deal, and may be making a little more by upselling the rate a bit (doesn’t sound like too big an upsell though).

October 26th, 2010 at 9:45 pm

Lawrence Thorpe

Wow! You really said that? There are so many new sales people coming into the mortgage sales business without reading anything about how it works.

October 27th, 2010 at 3:43 pm

Mortgage Marketing

Mortgage brokers have access to a wide range of mortgage products while mortgage lenders work with a single lender.

October 29th, 2010 at 2:56 pm

Mortgage Brokers

It is amazing how you did the comparison of mortgage broker and direct lender. I think that mortgage brokers are more wide-range than a lender.

November 18th, 2010 at 12:32 am

Best Mortgage

wow!! that’s great.