The lender you choose is just as important as the realtor you choose!
A mortgage lender has complete control over the file from start to finish within their company. The money to fund loans at closing comes directly from the lender who approved the loan, nobody else. Good mortgage lenders have local processing, underwriting, and closing, but some larger lenders do have offsite processing and underwriting centers. You will never be waiting on funding from an investor at closing if you use a mortgage lender. Mortgage lenders do have to meet certain investor guidelines and loans can be sold after closing by all mortgage companies, but a lender funds the loan, and then sells the loan after closing.
A mortgage broker does not use their money to fund loans. In order for a loan to close with a mortgage broker, that broker shops the loan around to possible investors who will actually fund the loan at closing. The loan goes to the investor’s underwriter who has final sign off on loan approval. Many “approvals” from mortgage brokers are viewed weaker than from mortgage lenders because until a loan is submitted to the investor, there is no true approval. Another disadvantage is waiting on funds to close from the investor as the broker has no personal control over the loan funding. There is also a risk of lowering your credit score, as the different lenders pull your credit (while the broker is shopping your loan).
The mortgage industry is getting more and more strict in tightening guidelines and investor overlays. It’s best to choose a good mortgage lender (not broker) to limit the massive number of problems and issues that can arise through the mortgage process.
HORROR STORY: I recently received a contract on one of my properties accompanied with a loan approval letter from a mortgage broker. As always, I followed up with a phone call to talk to the lender- asking if credit had been checked, ratios verified, etc. and was assured everything looked great.
We proceeded with the transaction. The buyer paid for the inspections and appraisal. The seller completed all of the repairs, put a contract on a new home, paid for the inspections, paid for the appraisal and THAT seller completed repairs. Cohesively, the third seller went under contract and did the same thing…. you get the point. Everyone did a beautiful job of fulfilling their part of the agreement, and was ready to move!
5 days before the closing (for all 3 houses), the buyer’s loan was denied. There’s nothing anybody can do at that point. Movers were cancelled, utilities were cancelled, and most importantly… nobody got the home they wanted.
I had the buyer visit with a mortgage lender to see if they could save the deal; and it turned out his credit was way below what was required, his ratios were way out of wack, and no way could he get approved. You can see how much hardship could have been saved if he went with a mortgage lender to begin with, but how could he have known? We Realtors need to do a better job of educating our buyers on the good, bad, and ugly in the lending industry.
Don’t let your dream home slip through your fingers!
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{ 20 comments… read them below or add one }
Oh my, don’t get me started Linda!
I might mention that mortgage lenders may also be referred to as mortgage bankers.
I don’t know how to even begin to respond to such an uneducated post. In today’s ever changing lending environment, it is more important than ever to work with a KNOWLEDGEABLE broker that has multiple investors/lenders they can place a loan with (Instead of trying to fit a borrower to one bank’s cookie cutter guidelines). An ethical broker can help sort thru the massive amount of lender overlays that exist on all loan programs (VA, FHA, Conventional, USDA/RD, etc.) which often change WEEKLY to scour the market to see if someone may have a chance to qualify that might otherwise be turned down else where.
The best news about all of this? Many times (a great percentage), not only are the rates better for the same customer (thru a Broker), but fees oftentimes can even be less (Did you know that mortgage brokers can offer no junk fee / no origination fee / no discount point loans at rates that are generally lower than a bank/banker?).
You might consider in the future that there are good and bad participants in every sector of the mortgage industry (whether banker or broker) before posting such a slanderous post about Mortgage Brokers.
Nick,
I have been selling Real Estate for 26 years. My opinion is based off the majority of my sales involving Mortgage Brokers, and not “education”.
In the past 9 months alone, I have had 4 sales fall through (after I received a loan commitment from the Mortgage Broker) and 6 closings delayed (with no firm projection of WHEN or IF they would happen) as a result of different Mortgage Brokers… all of whom informed me everything was clear and good-to-go.
While you may be an ethical, knowledgeable broker, I’m afraid a number of your peers fall short, and cannot change my opinion based on a single comment. I appreciate your passion and commentary, and hope your good practices will help you stand out in your field.
Until I have a handful of successful sales with Mortgage Brokers, I stand by my words and will continue to lead prospective buyers towards local lenders that have good reputations and have always been competitive in rates, absent in junk fees, honest in approval, and timely (in-house underwriting) with each and every sale.
Sincerely,
Linda Finch, Broker Associate
CIPS, CRS, GRI, ABR, PMN, LTG, RRC, SRES, SFR, FIABCI-USA
Women’s Council of Realtors
Referral and Relocation Certified
At Home with Diversity
OK, now you’ve got me started.
First, yes it’s probably wrong to stereotype. There probably are good mortgage brokers. Unfortunately they are few and far between. I just cringe when I have a buyer that’s gone through a mortgage broker.
I’ve seen far too many deals get to closing day and bust because of loan denial. That’s after having an approval letter from a mortgage broker. The approval letter really means nothing. I’ve seen higher (sometimes much higher) interest rates and fees at closing than were advertised up front. Buyers getting hosed because at that point they just need to get the deal closed. And you haven’t seen heartache until a mortgage broker bust a deal on closing day and that house is at the bottom end of a 7 house domino!
Sure a broker can shop around for a better rate. But it’s obvious in most cases that they’re shopping around for the best deal for the broker.
I’m sure if you asked any of our agents with any experience at all whether they would recommend a mortgage broker or banker, they’d pick the mortgage banker every time. There’s just way too much downside with only a small, theoretical upside.
I’ve got to continue recommending a mortgage banker. When they give me an approval letter, I know the deal will close, and on time!
Bill Wilson
CRS, GRI, ABR, SRS, CSP, ePRO
I must admit that I agree with Ms. Finch and Mr. Wilson. I have always used a mortgage lender or mortgage banker, but several years ago was convinced to go with a mortgage broker. Several thousands of dollars later I found myself in a horrible nightmare. Not only were the fees much higher, but when I went to sell the house a few years later what I was told was a non-enforceable, easily waived early payoff fee, was neither non-enforceable nor waived and I had to pay almost $20k more in fees. It will be a very long time (if ever) before I would be willing to go down the road of working with a mortgage broker again. That being said, I am far from an expert in this field as I have only purchased about 35 houses in the past 10 years for myself and for an investment company of which I am a partner. Comparing my limited exposure to this market, I can only imagine that Ms. Finch and Mr. Wilson are truely well-seasoned experts whom I would defer to their educated opinions any day!
I don’t even know where to begin. It’s clear from the article that you do not have a clue. But that is to be expected from most realtors.
You think the $30K per year “phone order taker” at 1-800-bankofamerica really cares if your transaction closes?
A total commissioned broker has a lot more on the line. Plus they have more options in the event something did happen. And for the record… lenders aren’t “pulling credit” over and over when a broker is just shopping rates for their client…..stupid comment. You people need to forget about 2005 when all a buyer needed was a pulse to get a home loan. Things are much different these days, it’s a totally different game. Every loan file has challenges not matter what bank/broker. The key is the actual loan officer and their competence.
This is all coming from someone that has funded over 300 million in home loans over a 10 year period…..and has worked for both national banks and brokers.
“”"I’ve seen higher (sometimes much higher) interest rates and fees at closing than were advertised up front”"”
Again….Wrong! not with the mortgage disclosure improvement act of 2009 and RESPA 2010. This is a thing of the past my friend. Everything is down to the penny these days.
Oh how quickly you forget warehouse lines drying up overnight leaving all those purchases unfunded. How many purchases were completely derailed 2 days before COE because the “lender” ceased to exist. I recall many a “branker (broker w/ banking)” scrambling to try to find a funding source.
As for ruined credit scores, that would only be due the borrower shopping w/ multiple brokers trying to save that extra 18 per month. The days of brokers double+ submitting are completely over as production pull through is mandatory so any credit score reduction is not due to the individual broker nor the broker’s lender choice (BTW – the lender only repulls credit PTF to verify the borrower has established any new tradelines that may affect the DTI)
ACTUAL HORROR STORY: I had a borrower Cleared To Close who against my previous instructions not to open any new credit cards/buy new car, etc. during the process, decided to buy new furniture and electronics for the house…….on credit. But it was OK because the Realtor told them the balance wouldn’t show up on their credit for a month or so after they closed. Ummmm, sorta, but the recent credit inquiry to the bureaus did and of course they wanted to know why and what the borrowers were applying for. Deal torpedoed thanks to the expert opinion of a Realtor.
Another True Story (more sad, then horror):
Recently visited an open house down the street. 1.6mil list price. Didn’t tell the agent I was in the mortgage business. After listening to the standard pitch he began to tell me about interest rates and what I could get; 20% down and a rate of 4.75% , 30 year, @ no points! Wow….just wow. I have yet to see any lender offering a $1.28Mil w/ that rate. .
I think Realtors should stick w/ driving around clients, showing them the houses, and asking questions like, “Can’t you just imagine playing w/ your kids in a living room like this?” and leave the mortgage business to mortgage professionals. I don’t think that sitting in your companies weekly meeting, hearing current interest rates and a snippet on the new Fannie regulation for the month should embolden any Realtor to offer advice on current lending practices.
On your 26 years in the business, I am floored that you have only had a few good experiences involving mortgage brokers. That is truly amazing. I will say I am impressed that you have stayed relevant in using technology and are blogging. You should be proud. You have correctly filed this one under “Random Thoughts”; I don’t think it should be filed under “Tips”. 95% “Fail”
John T -
+ 1 , great comments.
Thanks, Bill.
Futhermore, don’t confuse a “mortgage banker” w/ a depository institution. Unless they are BofA, Wells Fargo, Chase, etc. they are not a true bank. All the mortgage banker has is essentially a credit card w/ which to fund loans, then sell to the secondary market, and then repeat the process. When the S hit the fan over a year ago and they couldn’t clear their books, many mortgage bankers were left holding the bag and w/ commitments they could not meet. Here is an example of a how some (notice I haven’t lumped all mortgage lenders/bankers into one pot) of what happened to one such “lender” just this past February:
From the desk of Calvin Hammer, CEO Assurity Financial Services on February 22, 2010
“Due to circumstances beyond our control, including a rapid, precipitous drop in production below levels necessary to sustain the company’s operations, combined with the recent inability of the company to obtain the long term financing necessary to fund its loan production, it is with great sadness that we must announce the winding down of Assurity Financial Services, LLC. We will continue to fund loans for our wholesale and retail customers through Friday, February 26th, 2010. We will work diligently with our customers to assist in transferring loans in process scheduled to fund beyond February 26th, 2010 to lenders of their choosing who may be able to assist with their loan pipelines.”
and an internal memo to employees of AFS:
“The majority of you will be let go at the close of business on Friday, February 26th, with a small crew remaining behind to assist in an orderly wind down of the company to satisfy the obligations to its various stakeholders. Final paychecks for terminated employees will be issued on Friday, February 26th, 2010. We will make an exception to our long standing policy of paying commissions to our sales employees when loans are purchased off our warehouse line and will pay commissions on all loans that are funded thru Friday, February 26th, 2010. This way, everyone can have all of their money up front and no one will be waiting around for lingering commission checks as we clear off our warehouse line.”
The reality was that they could NOT clear their warehouse line and all the purchases that were lined up to fund Feb. 29th and after, mind you, ones that were clear to close, with letters of approval, were dead in the water. Customers had already signed docs, moving vans were schedule, previous apartments already rented out, all that was needed was the actual wiring of funds, that NEVER HAPPENED. It was a big problem, from what I hear; I haven’t experienced it first hand, because I broker my loans, manage my client’s and the realtor’s expectations and work w/ reputable lenders w/ track records.
Sorry for the misspellings .
Linda,
Our company is a mortgage banker and we also broker loans. I’ve been doing this over 20 years. Your theories are way off base.
As an entity that does both, we know their is real value in brokering a loan. Sometimes the loan will not fit or parameters. Sometimes a client can get a better rate from a different source that has an appetite for their particular circumstance.
The problem you are having is totally based upon the experience of the individuals you are dealing with. That is the plain and simple truth.
Lenders issue invalid preapprovals, just like some brokers. To give you an example, I have a client that went to large bank for same. She received a preapproval without ever producing any supporting income or asset documentation! Needless to say when she came to me, I actually reviewed the documents and advised her to purchase a home with lower taxes and / or price. Yes, taxes are a big part in determining qualifying ratios.
She will now be a homeowner and will close this week. The file is clear and set.
You need to find more experienced business partners. That is your total problem in a nutshell.
Linda,
You should also visit the site http://www.lenderimplode.com. There are currently 384 lenders that went “belly up.” They left many thousands of borrowers stranded.
For many, their warehouse lines were overdrawn and dried up. They could not fund committed loans or any other loans in their pipeline. There are also hundreds of smaller lenders that did not make the list but closed under similar circumstances. That is the reality of a strict lending environment. The funds are borrowed and the flow can be reduced or turned off at any time.
I worked for three of the companies on the list so I have a through knowledge of what happened.
I refuse to work for a lender that does not have the ability to broker. If they had that ability a lot of closings would have been saved.
Linda,
As a mortgage professional of 15 years, and having looked at over 4000 different deals through out my career, I can say with confidence, and certainly with more experience than what you have, that your perspective is filled with some very large errors.
I have worked as a banker and a broker and think it is only fair that you are corrected lest you lead astray some of your peers, and even worse–the consumer. You are too set in your ways to be educated so this is for them–not for you.
1- Mortgage brokers do not ‘shop loans’ by sending it around and having lenders pull credit. They all use DU or LP and then use that as a component of the loan approval. The other component is use of the underwriting manuals and each lender specific overlays. My point is the credit only needs tp be pulled once. When the wholesale lender is picked the ‘DU findings” are then assigned to the lender. Do you see how that works?
2- Sure mortage brokers are not using their own money, they are working with established wholesale lenders with millions of dollars invested in their business structure. These wholesale lenders are usually well oiled machines, with competent account executives, funders, closers, and underwriters. It is clear that you are not even aware of the how a mortgage gets from application to funding and it is best you keep your..shall we say ‘limited’ view of things to yourself.
3- Of course, there are bad apples in banking and on the mortgage broker side. Perhaps you should consider working with a competent loan officer, whether he/she is a banker or a broker, rather than be so sort sighted and simple minded by declaring “only bankers are good” and “brokers are bad”.
4- Don’t for a second thing that your 26 years has somehow made know all things mortgage lending. Even if you were doing 120+ transactions a year for each of those 26 years you would still not have the insight of how things work on our side of the business. It simply is not possible, or in your case it is assumed.
wrong on all fronts.
take a poll how many Bank of America loans were denied before closing because they dont know how to underwrite a file? i have reviewed many of theirs (and other big lenders) “Premiere PreApprovals” only to find the borrowers taxes were never reviewed or the loan officer failed to include any 2106 deductions.
or direct lenders warehouse lines dries up before before funding? imagine going to a direct lender who runs out of money…. a broker can always switch lenders to save a deal.
and as far as running credit many times? you obviously have never heard of re-issuing credit which every fannie/freddie lender does. who does run a clients credit many times? probably the loan officers who are no longer in business once this became a job and not a carnival.
Hi Linda,
Well said! In my short 6 year real estate career, I have never had what I would call a successful close with a mortgage broker. They typically don’t fund until a few hours after closing–if lucky. I’ve had a couple that didn’t fund until a few days after closing. And several that didn’t close at all. I advise my clients to use local lenders–people they will see at the grocery store or mall. I commend you on your article. To the mortgage brokers that have responded, I’m sure you’re the good ones. I encourage you to join with local lenders.
Bryan
Well, Well, EXACTLY as Linda explained happened to 2 buyers this week of mine ! Inspections complete,repairs complete, appraisal complete, both families packed, time off work approved for move,movers ready all for NOTHING ! Two busted deals very frustrating ! Only to have broker say ” I am so sorry , I take full responsibility …. I should have asked more questions”
Well, well, well…Exactly to the OPPOSITE as Linda explained, a Mortgage Loan Officer at a respected bank here in Oklahoma reaked havoc on one of my closings the other day. We (the mortgage broker) had everything completed and documents/instructions to title 4 days BEFORE the closing date. Our client, the buyer, is also selling his home. The mortgage banker for the buyer he was selling his home to assured all parties everything was fine on his loan. The sale of his home got all the way to closing and the buyer of his home signed the documents on the sale of his home only to find out that his beloved Banker messed up and could not fund the loan because of a problem they unveiled at the last hour (LITERALLY…AT THE CLOSING TABLE). The sale of that home has still not funded by the MORTGAGE BANKER and it is 2 days after they signed the closing documents. In my 18 years in this industry, I am in shock that a Banker would let someone sign closing documents and then not fund the loan at the last minute….These are the people you put on a Pedistal??? Wow!
Wow, what a response! I have been extremely busy and just now have the time to respond…
The first thing I noticed in reading all these comments was that not one person chose to list their company and contact information, and even worse, no first/last name. I found this quite amusing, and am wondering why you prefer to be relatively anonymous? The second thing I noticed was all the loan specifics that are being argued over. It seems that everybody is focusing on the details of financing, rather than the fact that everybody is playing by the same (for the most part) rules… but some bankers are winning and some are losing.
I understand that Mortgage Brokers and Lenders are constantly being challenged with new policies, but what separates my smooth sales from my bad (or non-existent) ones, is the Mortgage Lenders that can adapt quickly and make ethical decisions that do not affect the closing date. The few times that the closing IS changed I am assured a definite date and time, and am not waiting in limbo. Of course, there will be some Brokers that can match those practices, but am I supposed to advise my clients to go to whomever and just cross my fingers? That is a risk I am not willing to take. My overall business is based on repeats and referrals, which make up over 90 percent of my transactions. I won’t gamble with my clients’ affairs.
Alex (no last name) was right when he said I am “too set in my ways”. I have a dependable method that keeps my clients loyal and more importantly, protected. I have found I speak for the majority of Realtors, and just learned from a new peer in San Francisco (met at the Inman News Conference) a handful of Sellers, when presented with a multiple-offer situation will choose the one with a loan commitment from a direct lender vs. broker if all other terms are similar.
I cannot reply to each comment, but I think people are paying attention to the details of my blog rather than the big picture. We can argue over the specifics of loan approvals for days, especially when rules and regulations are changing daily, but the bottom line (in quoting Mark Robinson), is that my opinion is “based upon the experience of the individuals you are working with”. I agree 100%, and that is why I will continue referring all my business to the two direct lenders that I have used for over 10 years. When I send my clients to them I am worry free and know our contract will close on time!
Sincerely,
Linda Finch, Broker Associate
CIPS, CRS, GRI, ABR, PMN, LTG, RRC, SRES, SFR, FIABCI-USA
Women’s Council of Realtors
Referral and Relocation Certified
At Home with Diversity
Hello Linda!
It was a pleasure working with you on the closing last Thursday! Maybe that transaction helped shed some light with regards to the ability of mortgage brokers.
Best Wishes,
Nick