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An article written by Teresa Boardman (author of stpaulrealestateblog.com) on Larry Cragun’s mortgagesundressed.com highlights her reasons for choosing a bank to provide financing for her clients home purchases over mortgage brokers. She lists seven key areas where she feels banks outperform mortgage brokers in the origination and funding process. Larry, who favors mortgage brokers over banks, reproduces her article faithfully, untarnished by his thoughts. Good for him. It’s nice to see the blogosphere provide important industry discourse in a professional, respectful way.
I happen to disagree with Teresa. I believe that mortgage brokers are much better equipped to handle transactions than the actual banks. I will go step-by-step over some of her comments with my thoughts in future posts; but wanted to focus on her first contention here. My belief is that mortgage brokers are (i) more motivated to close the sale than bank employees (ii) have more options available to them than a bank (iii) have more flexibility in terms of fees and (iv) have more knowledge and experience than bank employees.
My first disclaimer: the above four points ONLY HOLD TRUE IF YOU ARE WORKING WITH A REPUTABLE BROKER. If you are not, this all goes out the window, and anyone will be better than a poor broker. If you are not working with a reputable broker, the broker business model is not the problem, your screening process for selecting business partners is. Second disclaimer, the more established the brokerage the more the above four items hold. Established broker businesses have investor-delegated abilities, larger operations staff and more clout with end investors which all help in the process.
If you can’t agree with me on the first two points, stop reading. With out accepting that good brokers can provide effective service via the broker business model the rest of this is just window-dressing that you won’t agree with either. With that here is Teresa’s first comment:
1. Not being able to find them. When dealing with a bank we can find someone to help us if the loan officer is not available. As a listing agent I get a pre-approval letter from the buyers agent for an offer on one of my listings and it can take a business day before I can talk to anyone who can tell me if the letter and or the company are legitimate. As a buyers agent I want to know that my buyers are getting the best rates and are not borrowing more money than they can make payments on. How much money someone borrows is none of my business but if I can educate a borrower before it is too late they just might be spared some of the misery caused by a loan that is too risky or expensive.
I have a problem with this entire train of thought. First, trying to get a hold of an originator at a bank is very difficult. Navigating through a bank phone tree can be excruciating. Once you get to the originators line and get voice mail, trying to find a live human who knows the person you are looking for is near impossible.
Further, I challenge anyone to try to get a hold of a bank employee after 5 pm, go ahead, try it. Heck, most hourly/salary compensated bank employees are letting voice mail get any calls inside of 4:50. How about on a Saturday, Sunday? They don’t call them "bankers hours" for nothing.
Additionally, knowing that your borrowers are getting the best rates has nothing to do with using a bank. In fact, the rates through retail bank branches are usually much worse than through a good broker. The bank requires loan originators to make a minimum spread (profit) on the loan. The bank also has to cover large overhead such as employee salaries, health insurance, 401(k), 125(c) plans and other benefits. Guess what? Those ALL get priced in to that loan. So much for best rates. The broker rates don’t have any of that overhead tacked on to ensure the bank’s profitability.
The bank originators are also quoting off of one "McDonald’s" type menu. 4 or 5 options, take it or leave it. They don’t have the ability to find the best investor for the particular loan. Each bank does its own risk analysis and decides the types of loans they want in their business and which types they don’t. In order to make that happen they price aggressively on loans that they want and they intentionally price themselves out of the market on loans that they don’t want. If have a borrower looking for a loan type that happens to be one that a particular bank doesn’t really want (but will take if the spread is right) you can guarantee your borrower is looking at the furthest thing from "the best" rate for that loan.
Good brokers have the ability to work with banks that want that specific loan based on the individual bank’s risk modeling and market niche, and can find the best price for that situation with out being limited to the above-mentioned 4 options.
Lastly on this thought, the assumption that a bank employee is somehow more prudent in determining lending limits has no founding. An unscrupulous originator at the bank is just as anxious to up the loan amount and maximize their commission as the next unscrupulous broker. It has to do with the person, not the institution. This comment also infers that the bank originator is somehow more educated, professional and exhibits a greater display of fiduciary responsibility than a broker. Again, just untrue. Most bank originators are not licensed and are not required to take courses other than minimal education requirements as they are covered by federal banking laws. These courses and education are nowhere near as stringent as that required by brokers to obtain their licenses.
I’ll take the rest of her comments in smaller chunks on subsequent posts. It is personally frustrating that so much emphasis is placed on the benefits of a bank when really the issue is the benefits of a bank vs. choosing a poor mortgage broker. These attributes listed here are more a function of the individual than they are a function of the business model and/or entity.
A little due diligence in to brokers could probably save many Realtors like Teresa several closings and provide customers with a better range of mortgage products to choose from when qualifying for their new home.
I agree - for conventional loan programs, I’m not certain that a broker isn’t the best alternative. I’ve found most of our brokers to be incredibly hard-working and diligent, and so we refer them all to our clients and let the client choose. In those rare cases where something a little more refined is necessary, like a shelf-loan, a bank is a good card to have in your pocket but for the most part, all of our loans go through brokers. They work hard for the business, and we appreciate that.
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