Most borrowers focus on their mortgage rate and loan terms and never consider the type of lender they will choose. Read on to find out why that could be a mistake. Once upon a time you would obtain your home financing from a large commercial bank, a community bank, or possibly a credit union. Credit Unions lend the deposits of their members back to their members, so they are able to create their own loan programs and that gives them flexibility with their guidelines. Community banks are for-profit, smaller banks, with a focus on community investment. The program choices offered by credit unions and community banks are generally limited. Large commercial banks offer an array of programs, but your loan officer at a bank might be a trainee who will be moving on to another position in the bank in another year, just one of the reasons that big banks are famous for poor customer service.
Poor customer service and limited offerings from commercial banks fueled the rise of mortgage brokers, who can evaluate loans available from many lenders and help clients choose the best deal from many products offered. A good broker will offer a high level of personalized service and convenience – which can be sorely lacking when dealing with large banks. The ability to shop among many lenders and a high level of customer service led mortgage brokers to take a large share of the mortgage business away from the big banks in the 2000’s. Back in 2006, the National Association of Mortgage Brokers had 25,000 members.
Today, the National Association of Mortgage Brokers is down to about 5000 members. Why is that? Mortgage brokers do shop among many lenders for a good deal for their clients – but, once they have locked the rate, they lose control of the loan. Additionally, after the housing crisis, the large commercial banks had a stronger lobby, and the new mortgage regulations that were implemented to increase the quality of loan origination was particularly hard on mortgage brokers. But another important factor is that once a mortgage broker locks a rate, they must then deliver the complete application and all of the supporting documentation to the investor who has agreed to buy the loan – and that investor underwrites the loan, prepares the closing package, and sends the closing funds to the closing table. So if your loan is being provided by a mortgage broker, your loan is out of their hands when it comes time to obtain approval for your loan. I was a mortgage broker from 2005 through 2009, and I was always frustrated by this lack of control. I’ve happily been a mortgage banker since 2010, although I still have the ability to broker special loans that need out of the ordinary loan products.
In 2011, 50 percent of all new mortgage money was loaned by the three biggest banks in the US: JPMorgan Chase, Bank of America and Wells Fargo. But by September 2016, the share of loans by these three big banks dropped to 21 percent. And with the recent ruling against Wells Fargo limiting that bank’s ability to grow, it seems likely that Wells will be scaling back even further. So who is taking business from the big banks? Non-bank lenders.
Non-bank lenders are financial institutions who do not offer deposit accounts. We originate mortgages and that’s it. Non-bank lenders – also known as mortgage bankers or correspondent lenders (like me/Corporate Investors Mortgage Group) – provide a high level of customer service and shop for your loan among many investors – looking for the best deal for our clients. But we are also able to maintain control of the processing, underwriting and closing process. My loan processor’s desk is 20 feet away from mine, and we send your loan to our own underwriter for loan approval. And then, our closing department sends the closing package AND wires our money to closing to fund your loan, giving us complete control. This is what gives the edge to mortgage bankers. When push comes to shove, if your loan hits any kind of speed bump, you are going to be in much better shape if your loan is being originated by a mortgage banker.