Dear Mortgage Enthusiasts,
As usual I’ve got an exciting one for you today. I’m going to breakdown the pros and cons of the different types of organizations you can go to when deciding how to finance your home. Thrilling, I know!
Before I get into the good stuff, you should know that the descriptions I’m about to give are generalities. There’s an exception to every rule. So when I say that big banks are soulless institutions that want to grind the American consumer into dust, I really mean it. It might not sound like a statement that takes into account that one time Bank of America waived an overdraft fee for your Grandmother after 40 years as a loyal customer when she forgot to cash her social security check before swiping her debit card at Forever 21, but it does. That was an act of unbelievable benevolence and should not soon be forgotten.
Alright. Up first on the chopping block are banks. Banks are soulless institutions that want to grind the American consumer into dust. No seriously, banks are not a good place to get a mortgage in 2019 nor have they been for some time. Here’s why…
Originating, underwriting and closing a mortgage is a really hard process. If you’re a past client of mine and you’re reading this, I know, I make it look easy. But trust me it’s not. Ever since the recession, mortgage guidelines became extremely complicated. Same with compliance. When an industry is complicated you need skilled people to navigate it. Skilled people are expensive. So there’s really not as much profit in offering mortgages as there used to be. Unless you’re Quicken and rip the consumer off. But banks can’t rip their clients off on mortgages. That will make it harder to rip them off on their more profitable lines of business like .50% CDs, and 17.55% APR Credit Cards.
I’ve got more positive things to say about local banks, but they run into some of the same problems as big banks. They’re doing a dozen different lines of business, and residential mortgages are by far the hardest and least profitable for them. Most of them just don’t have the bandwidth it takes to close a mortgage on time, at a competitive interest rate in today’s market.
The exception to all this is with Jumbo Mortgages. In this area (DC Metro) that means any loan amount over $726,525 (as of 2019). If you’re willing to park $500,000 with Wells Fargo Wealth Management, there’s a good chance they’ll be able to give you a better interest rate than anyone else. I told you they were benevolent!
First of all there are really two types of direct lenders. There are crap companies like Quicken, Freedom and Loan Depot that are really just efficient marketing companies with call centers out of Timbuctoo. And then there are local lenders. Some examples of local lenders in the DC area are Embrace, McLean Mortgage, and Apex Home Loans. These are all great companies that originate, underwrite and fund their mortgages. Local lenders like this typically have good reputations, focus on relationships with local relators, and have robust training programs for loan officers. Like any other big company they have good loan officers and bad loan officers. But with the role they’re trying to fill in the local market place, reputation is important and they’ll usually go to great efforts to protect this reputation.
But all this stuff costs money. The structure, training, marketing to realtors, staff, big office spaces, and on and on. And while their interest rates should still be competitive, they do need to have larger margins to pay for these expenses and you may see that reflected in their interest rates. Don’t get me wrong, they should still be competitive. And you should get some peace of mind for this additional expense. However, you’re probably not going to find rock bottom interest rates with local lenders.
And then there’s Mortgage Brokers. I am a Mortgage Broker and let me tell you we are just the bees knees. Mortgage Brokers are truly independent and essentially have the entire market at their disposal. What does that mean to you? It means that if you came to me and your credit score was 830, you had a 20% down payment and wanted a 15 year mortgage I am going to be able to place your loan with a lender that has excellent programs for your scenario. It also means that if you have a 580 FICO score, only have 3.5% to put down and foreclosed on the last home you owned 7 years ago, I’m going to work with a lender that fits your needs too. Same if you’re a Veteran, buying in a rural area, want to do a Fix & Flip and on and on and on. If you need to borrow money to buy a home or refinance, and there’s anyone out there that is willing to do the lending, I can probably find them. If there are lots of institutions willing to lend you money I can find the best one.
Now hell, if Mortgage Brokers are the best, why isn’t every loan officer a mortgage broker? Well that’s a damn good question, and I’ll tell you why. Being a Mortgage Broker is really hard.
The Hustle Is Real
I don’t have a big fancy marketing team to help me get business… I have to hit the streets, stay pretty and hope I successfully convince people that I know what I’m doing.
There’s no compliance department reading my blog to make sure I don’t say something that gets us shut down. I have my mommy.
We don’t have any training to tell me about new programs or bosses to tell me how to do my job. I have to stay on top of the market myself. And God help me but every day I am left to my own devices with no one but my clients to answer to.
So there are downsides to being a broker, but none of these are downsides as far as the client is concerned.
Along those lines, I’m going to dispel a few overblown myths about Mortgage Brokers right here, right now.
Once your loan is submitted Mortgage Brokers, you lose all control of the process. If there is a problem in underwriting they won’t be able to help.
This is nonsense. I’d argue that I have just as much control and contact with underwriting as a Loan Officer that works for a direct lender, if not more. To the lenders I work with, I am a client. If you think they’re going to keep my business by ignoring me after I submit my loan then you’re an idiot. I have direct access to every Underwriter at every Lender we work with. I also have access to the Underwriting Managers, Operation Managers, and often the CEO of the whole company. Come on now. You think I’m running a referral-based business with no control over my process?
Your loan is going to get sold if you work with a mortgage broker.
While this statement is actually true. The reason that I listed it as a Myth is because it’s my blog, and I can do whatever I want. That and the fact that your loan is just as likely to get sold if you work with a bank or direct lender. Direct Lenders are only lenders because they have lines of credit to fund the loans. They sell them immediately afterwards. While Banks have some portfolio products that they’re going to keep (because no one will buy them). If you’re going to them for anything that resembles a traditional mortgage, that loan is going to end up with a Servicing Company. It will be owned by Fannie Mae or Freddie Mac like every other loan.
Beyond all that, it really does not matter. The terms of your loan won’t change. As long as you pay your mortgage on time you won’t have any problems. If have an awesome Mortgage Broker like Brendan McKay, you can still call him years after closing. He’ll help you deal with whatever servicing issues you’re having. Because he cares.
That’s it. Bye bye.