At the heart of this debate is the single fact that while a mortgage banker works for his/her institution (bank or mortgage company) a broker works for you, the consumer. A banker is required to put their bank’s interests first and yours second.
Which is why, after 8 years of working for large institutions, including Countrywide and Bank of America, I decided to go independent and start Transparent Mortgage in 2011. I wanted the freedom and autonomy to focus completely on serving my clients. I slept better at night not having to deal with the inherent conflict of interest that arises when you work for a big bank.
Fighting for the individual homeowner, protecting their rights and being a consumer advocate in an industry where the big banking institutions and lenders have nearly all the power, is the driving force behind my work as founder and owner of Transparent Mortgage.
The National Association of Mortgage Brokers (N.A.M.B) says a broker is “an independent real estate financing professional who specializes in the origination of … mortgages.” While a mortgage banker, according to the Mortgage Bankers Association (M.B.A), is “an individual, firm or corporation that originates, sells and or services loans secured by mortgages.”
Aside from the ethical and fundamental difference of whom the mortgage professional works for and whose interests they ultimately serve, here are some basic distinctions:
1. A Mortgage Broker will shop your loan application to any number of wholesale lenders based on price or special criteria such as a niche product, underwriting guidelines or the ability to close fast. A mortgage banker may have a few different investors, but ultimately one set of guidelines and rates to offer.
Result: This equates to the mortgage broker being able to offer more competitive rates and a more diverse set of products and guidelines to help get a loan approval.
2. A mortgage broker will have in-house processing, but the wholesale lenders complete the underwriting and funding. A mortgage banker will have processing, underwriting and funding in house.
Result: In some cases, the mortgage banker can close a few days faster. It is worth noting that, for the most part, this only applies to direct lenders, who are technically mortgage bankers, but not the actual banks themselves. The big banks are notorious for being slow and very difficult to work with. I can attest to this first hand.
3. A mortgage banker is incentivized to do more volume on a monthly basis as far as how many transactions he/she brings in. This boils down to a mentality of getting as many applications in the door and doing less complete and detailed work up-front on a pre-approval as well as a lower level of service during the transaction. For example, a top mortgage broker may have 5-10 loans in his pipeline at one time, while the top mortgage banker is likely to have 10-20. The mortgage banker becomes spread too thin and simple cannot give the attention each loan and client deserves.
Banks also tend to have a higher percentage of loans that are denied by the underwriter, i.e. don’t close. Granted, the true professional, whether working for a broker or a banker will take the time and make sure to minimize “fall out” because they know how much this can hurt the client and potentially cost someone their home. However, the big banking system itself is not built to give bankers this personal responsibility.
Result: Working with a top mortgage broker gives the consumer a higher level of communication and service from start to finish with less risk that the loan application will be denied.
Final Verdict: If you want a higher level of service and commitment (without paying a higher rate) you are more likely to find that working with a top rated Mortgage Broker.
Granted, there are good apples and bad apples on both sides and the independence that a mortgage broker has can abused if the broker is not ethical or client focused. But when you have a company and a culture that is purely and completely in alignment with serving the client, the end result is the homeowner getting a much better experience and quite possibly a better rate!