Sunday, October 30, 2011

Bankers Vs. Brokers - What are the Differences?

Ever wonder what the difference is between a mortgage banker and a mortgage broker? Today's winning question by Steve Jacobson of Metro Brokers addresses that issue. Steve receives a $25 Starbucks card and gets his contact information sent to the 6,600 people on our contact list. We also list his contact info on our blog (10,199 visits for the first 6 months of 2011) and on our blog at Active Rain, a real estate blog with more than 210,000 members.

Steve's contact info follows:

Steve Jacobson CRS
Steve Jacobson Group - Metro Brokers

Steve's question is: What are the differences between Mortgage Brokers and Mortgage Bankers. Should one be considered better than the other?

Here's the answer: The main difference between bankers and brokers is in the way they fund the loans they sell. Mortgage bankers fund the loans themselves - the money comes from their own credit line. Mortgage brokers, on the other hand, do not fund the loans themselves. Instead, they arrange for the money to be sent to the closing, but the money comes from the bank.

There are two types of mortgage bankers: retail and wholesale. Retail mortgage bankers have employees who get paid a salary and work only for them, and they only sell their own loans.

Wholesale mortgage bankers get paid on a commission-only basis, and they sell loans from many different banks.

Because retail mortgage bankers have salaries and other overhead to pay their employees, they generally have higher interest rates than wholesale mortgage bankers. Also, lenders offer wholesale bankers lower rates in order to entice them to sell their loans. If Wells Fargo and US Bank are two of the banks that a wholesale banker represents, then both Wells Fargo and US Bank have to offer that wholesale banker a cheaper interest rate than they offer their retail customers. It is the only way they can get the wholesale banker to sell their loans.

Mortgage brokers (the people who do not fund their own loans) have interest rates somewhere between retail bankers and wholesale bankers. They are cheaper than retail bankers, but not quite as cheap as wholesale bankers. That's because the wholesale bankers assume some of the risk for underwriting the loans they sell. In exchange for assuming that risk, the lenders give wholesale mortgage bankers lower rates. Since mortgage brokers only act as middlemen, and do not assume any risk, they don't get the same low rates that wholesale bankers get.

So here are the differences:

Retail mortgage banker:
  • Fund loans themselves
  • Can only sell loans from their own bank
  • Have the highest interest rates
Mortgage brokers:
  • Do not fund loans themselves - they only arrange for the funding
  • Can sell loans from many different banks
  • Have slightly lower interest rates than retail bankers
Wholesale mortgage bankers:
  • Fund loans themselves
  • Can sell loans from many different banks
  • Have the lowest interest rates
None of this is to say that you should always use a wholesale mortgage banker, just because they have the lowest interest rates. There are plenty of good retail mortgage bankers, plenty of good mortgage brokers, and plenty of good wholesale mortgage bankers. You should use a lender with whom you are comfortable. Yes, low interest rates are important, but using a lender who is knowledgeable and trusting that your lender is not ripping you off (as so many lenders do) is more important.

Just FYI, we are wholesale mortgage bankers: we represent many different banks, we fund loans ourselves, and we have the lowest rates. And we are certainly knowledgeable!

Getting a loan approved is easy - if you know what to do. The Mortgage Experts know what to do!!!

Make sure you check out our web site:

By the way, don't forget to refinance your current mortgage. Rates are very, very low right now. Don't miss out! Call us today to get the details for your particular situation.

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