Wednesday, March 2, 2011


A few years ago, very few home buyers could tell you if they were working with a mortgage banker or a mortgage broker.  Financing was so readily available you could get a loan almost anywhere... brokers, bankers, credit unions, pawn shops... everyone had money to lend.

Today, that distinction makes all the difference.

In short, mortgage bankers lend their own money, while brokers "shop" loans to different lenders and deliver that loan file to the selected lender, who then must underwrite, approve and fund the loan. 

So which option puts you in the stronger position?  And which one is more likely to lead to heartbreak at closing?

Let's look at the basics for an answer.  With a mortgage banker, there is usually only one entity which is underwriting, approving and funding the loan.  And that is the mortgage bank itself.

With mortgage brokers, there is a layer of risk because the mortgage broker does not have a direct association with the lending underwriter, and it's rare that a broker can ask for a management review or take other steps to win an approval on a difficult file.  (And just because you are a well-qualified buyer does not make your file "easy".  Appraisal conditions, liens, title issues and other conditions totally beyond a buyer's control can turn a seemingly simple transaction into a very high risk, stressful and uncertain ordeal.)

There are good mortgage bankers and mortgage brokers.  But the brokers have been scapegoated to a large extent for many of the bad loans that were made over the past few years.  Because brokers are not lending their own money, there is a perception that they have "less skin in the game", and because of that, a broker's loan file is going to be looked at more closely than an in-house mortgage banker's file. Anything from a broker channel that feels the least bit risky is likely to be hit with a wall of resistance. 

Whether you choose to go with a broker or a banker is up to you.  But if you choose to go the mortgage broker route, you better trust that your loan officer is totally competent and that your file is totally clean... because your margin for error is next to nothing. 

Many banks have completely eliminated their broker channels, while others have imposed strict buyback requirements that will put a mortgage broker out of business with one bad loan.  So do you homework, make sure you understand the difference, and realize that circumstances totally beyond your control could cause you to show up at closing without the funds to close the deal if your transaction hits the smallest pocket of turbulence.