7 Reasons to Get Your Mortgage From a Broker

Source: Billy Hathorn

Have you ever known something to be true, I mean to your bones, and you just couldn't understand why everyone else didn't see it? And it becomes your mission to show people the light?

There's an old Yiddish expression for just these moments, "To a worm in horseradish, the world is horseradish." And for Bill and Cathy Early of PlumDog Financial, selling mortgages through their brokerage in Asheville, NC, has been their horseradish for the last 30 years.

I recently had the opportunity to speak with the Earlys and asked them why borrowers should choose a brokerage instead of a bank. And today, I have their top seven reasons.

1. There isn't a clear advantage on rates
Surprise! Working directly with a bank doesn't guarantee you better rates, in fact, according to Cathly Early, "Since we have relationships with dozens of banks, we'll always be competitive, if not better."

2. You're more likely to get approved
If your credit rating, income, and assets are all in great shape, then it may never be a problem. For the rest of us, however, it's a fantastic benefit to work with a broker that will shop your loans to several lenders. The more lenders who see your application, the greater the chance your loan gets approved.

3. They handle the loans from start to finish
According to Bill Early, "getting a mortgage is one of most stressful situations... in fact, mortgage means death in Latin." Therefore, doesn't it make sense to have someone, the same someone, there from when you start your loan to when you finish it?

With a brokerage, specifically PlumDog Financial, that's exactly what you'll get. According to the Earlys, banks have what's called a "central processing area," meaning your loan may get passed around -- which, if you ask this investor, doesn't sound particularly comforting.

4. Brokers are licensed
Mortgage brokers have to be certified in order to operate -- this includes testing, continuing education, and background checks. Therefore, regardless of the state, you can be sure your mortgage broker is both knowledgeable and not a criminal -- which seems pretty important.

Mortgage bankers, on the other hand, aren't always required to obtain the same types of certifications. In many cases they are, but the rules are different from state to state. So, for that reason, knowing your state's regulations and the experience level of the broker or banker is essential.

5. One-trick pony
What if all you need is one trick? Wouldn't you want whatever pony is the best at that one trick? The mortgage process is a complex one, much more complex than I had ever imagined, and there are a number of things that can go wrong along the way.

This is another reason the Earlys suggested their brokerage, "This is all we do, we're going to know how to do it... there isn't much we haven't seen."

6. Brokers work on commission
Upselling will occasionally happen in the mortgage brokerage business but, as the Earlys explained, for those who depend on referrals, it's just bad business.

Also, businesses that work on commission are more likely to push your loan through quickly, and considering borrowers: 1) want to lock in rates, 2) get into their new home, and 3) avoid a prolonged stressful situation, it seems advantageous to have someone interested in hurrying the process along.

7. Better loans happen in person
According the Earlys, having someone to help you get approved is only the start.

The real benefit, they suggested, is having an experienced broker to help borrowers decide on a monthly rate. As Bill mentioned, "you have to look at the client's nonverbal behavior, and get an idea of what they're comfortable with... they might be able to afford something but not be comfortable with it."

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  • Report this Comment On January 04, 2014, at 4:22 PM, PacJohn wrote:

    Another reason NOT to use a Bank is their control of the appraisal process. Now that the banks have taken over the appraisal industry, each major bank owns their own appraisal company (BoA owns Landsafe, Wells Fargo owns RELS, etc) which enables them to "cook" the appraisal according to their needs. Paying for unnecessary mortgage insurance and having to put up a large unnecessary cash reserve account are only 2 ways the major banks can now defraud and extort from the consumer, using a "customized" appraisal.

    Do NOT use a bank, and if you have to, be very careful of the appraisal process. A bank underwriter can now request from the reviewer (bank appraisal reviewers are typically in India or Mexico) any modifications that suit their need to minimize risk and maximize profit. Always insist that the appraiser be local and experienced. If the underwriter "cooks" a solid value, your more apt to get results from your local district attorney's office and/or state regulatory agencies.

    If you have had to pay unnecessary mortgage insurance or had to put up more than 2 months of cash reserves, you should contact both your local DA's office and the state agencies who regulate and prosecute criminal activity.

  • Report this Comment On January 05, 2014, at 11:50 AM, mikeceleven wrote:

    Only a couple banks own their appraisal companies and I would not advise going through BOA or WF for anything. However Brokers might be a little quicker depending on the bank but are almost always more expensive in fees and only sometimes less in rate. I work for a bank and love when clients shop me against brokers because they are generally $1000-$3000 higher in fees for the same rate. So here is a list of why not to use brokers.

    1) banks are severely regulated and cannot take advantage of you. I had a Veteran who came to me because he was advised by a broker to get a lower rate by obtaining a ARM on a home he was going to keep for 10 yrs. The rate was only 1.5 % lower than a fixed rate however the borrower was being charged 2 points and his total closing costs were going to be $17,000. We did the same deal for $5,000 in closing costs. The difference in savings would have taken over 25 yrs before he broke even which resulted in less than 5 yrs of savings.

    2) The Government basically underwrites almost the loans right now as Fannie, Freddie, FHA, VA, USDA are all backed/insured by the US GOV. With that being the case the guidelines needed to qualify for a mortgage between lenders is very minimal and 95% of the time if you can't get approved by a specific lender then you will not get improved by all of them.

    3) Brokers work on your loan from application to closing but then after closing sell the servicing of your loan to another lender. This hinders all of their power in helping you in the future if there are any problems with your account. Most of the big banks will NOT sell the servicing of your mortgage meaning that you will always make payments to the same person. My clients are clients for life as we do not sell the servicing of loans so they can call me at anytime and I can easily help them answer any questions at any time or be the mover and shaker to get any issues addressed asap with the appropriate managers/department.

    4) Banks do offer more products so when like any business if have multiple accounts you receive more discounts because the bank does not need to make everything on 1 simple mortgage. We offer discounts to rate, closing costs, free checking accounts, increased investment rates for CD's Money markets, etc. If you are looking for an institution to help with more than one item and form a long term relationship then a bank is the way to go.

    5) All Mortgage Loan Officers work on Commission not just Brokers. WF just got rid of all of their salaried MLOs.

    6) Not all Brokers or all bankers meet their clients in person as a lot of Banks/Brokers can work with clients across state lines. When this is the case it is usually best to go with a bank as they have experience lending in all states and even have locations there wile most brokerages are experienced lending in only one state.

    7) I always tell my clients in the end Whether you choose a Bank or Brokerage to make sure you feel 100% confident on all aspects with the loan Officer you are doing business with. The are good Bankers/Brokers and there are Bad Bankers/Brokers within every company. Your job is to find the one that is not just a sharp salesman but actually knows what they are doing.

  • Report this Comment On January 05, 2014, at 12:01 PM, mbgb24 wrote:

    Way to funny of an article.

    Only banks can lock your rate. Only the person who is lending the money can lock a rate. So there is a lot that is missing from this article.

    So if a broker can not lock your rate, how do they guarantee it? They only do once a bank locks the" banks rates" and trust me there is a lot of price points in mortgages.

    Second, the frank dodd act requires ALL LENDERS" TO USE THE SAME APPRAISAL PROCESS. IF A BROKER TELLS YOU OTHERWISE, HUGE RED FLAG AND POSSIBLE BS-ING YOU.

    ALL MORTGAGE BANKERS HAVE TO AT LEAST MEET AND TO STAY CERTIFIED UNDER THE SAFE ACT.

    NON DEPOSIT INSTITUIONS HAVE TO BE LICENSED IN EACH STATE THEY WORK IN, SO MOST BANKERS HAVE STATE CERTIFICATIONS AS WELL AND THE CONTINUING EDUCATION REQUIRMENTS THAT ARE REQUIRED EVER YEAR TO BE RENEWED TO CONTINUE TO DO BUSINESS IN THAT STATE.

    SO WHO MAKES SURE YOUR BROKER IS " ACTUALLY GIVING YOU THE BEST DEAL"?????

    98% OF MORTGAGE BANKERS WORK ON COMMMISION AND REFERALLS. TO THINK THAT BECAUSE THE BROKER WILL BE PAID ONCE THE LOAN CLOSES, MEANS THAT THE LOAN WILL CLOSE FASTER, OR THAT THEY HAVE ANY CONTROL OVER YOUR PROCESS IS PLAIN RUBBISH.

    THIS WHOLE ARTICLE IS A JOKE-BIASED COMPLETLY AND FUNNY TO SOME ONE LIKE MY SELF.

    HEY GO TO THE PLACE THAT DOES NOT ACTUALLY LEND YOU THE MONEY ON THE WHOLESALE MARKET AND HOPE YOU GET THE BEST DEAL, THAT IS MORE ACCURATE. OR CALL 3 LENDERS YOUR SELF. TAKE 15 MINS OF YOUR DAY TO DO THE COMPARISION YOUR SELF. I WOULD RATHER TRUST MY OWN EYEBALLS BY LOOKING AT EACH QUOTE TO MAKE SURE I GET THE BEST DEAL.

    WHAT BROKERS SOME TIMES DO IS LOOK AT WHICH LENDERS ARE OFFERING THE BROKER THE BEST PREMIUM PRICING ON RATE LOCKS THAT DAY, AND IF BANK A IS BETTER THAN BANK B, BOTH HAVE THE SAME RATES AND LETS SAY BANK A PAYS THE BROKER MORE MONEY, AKA PREMIUM BUT THIER PROCESS MAKES YOU WANT TO RIP YOUR HAIR YOU, I AM WILLING TO BE THAT 95% OF BROKERS WILL SEND YOUR LOAN TO THE BANK THAT PAYS THEM THE MOST MONEY....WHY BECAUSE AT THE END OF THE DAY 95% OF BROKERS LOOK AT WHAT IS IN IT FOR THEM AND NOT ALWAYS WHAT IS BEST FOR YOUR CLIENTS.

    REMEMBER YOU CAN HOLD LENDERS, BANKS ETC ACCOUNTALBE. IF A BROKER SCREWS YOU, WHAT WILL YOU DO OR HOW WOULD YOU EVEN KNOW IT?

    JUST DO YOUR SHOPPING, BUT THERE IS A REASON WHY BROKERS NO LONGER CONTROL THE MAJORITY OF THIS MARKET.

    THERE ARE GOOD BROKERS, BUT FAR AND FEW IN BETWEEN.

  • Report this Comment On January 05, 2014, at 2:02 PM, normgarry wrote:

    Brokers take your credit application and shop around for better rates. Because they bring volume to banks, they are more likely to be able to offer a good interest rate. They also help prevent losing fico points by too many hard inquiries being made on your credit history if you attempt to shop for a mortgage on your own.

  • Report this Comment On January 05, 2014, at 2:04 PM, normgarry wrote:

    On the negative:

    Brokers will rip you off to give themselves higher paychecks. At the end of the day, they are selling you a loan and you are paying for it.

  • Report this Comment On January 06, 2014, at 1:13 AM, Mtgman wrote:

    This article and most of the comments are foolish. Shop for the product and select a provider you are comfortable with. In large degree the industry is regulated such that your outcome will be the same regardless of which channel (banker or broker) you select.

  • Report this Comment On January 06, 2014, at 3:34 AM, PacJohn wrote:

    Yeah, a broker usually costs a little more AND its worth it. Consider the high turndown rates at the majors vs. what a good broker can do. Also consider the potential upfront costs lost in a Bank turndown and the time lost as interest rates climb.

    Modern day big Bank lending now removes origination from underwriting. After the loan package has been "automatically underwritten" and then reviewed by an underling in India and then sent to some overworked senior underwriter in Petticoat Junction, your highly professional, well intentioned local bank rep you deal with, can only apologize for the delays and endless requests for forms already submitted. And ultimately, have no viable loan product to offer.

    Gone are the days when your big Bank rep could walk upstairs and take care of underwriting nonsense directly.

    A mistake in your credit report and a low-ball appraisal, can create a unique level in hell you don't want to experience. While most loan snafus are fixable, it's next to impossible to correct those 2 "mistakes" in particular.

    A bad appraisal can cost some serious coin, if not cause a turndown. It also impacts mortgage insurance and cash reserve requirements.

    While not all "mistakes" are intentional crimes, gross incompetency has the same impact on the bottom line.

    A good broker has more loan products available and is usually more adept with the ins and outs of the process. They are also more capable of interrupting the loan process if the assigned appraiser is questionable.

    And of course, a good salaried bank rep can be BETTER than a bad commissioned broker.

    Ask around and find out locally who is best. Ask like-property borrowers who just went thru the process. A loan on an igloo in Naknek is very different than a loan on a stock cooperative in SOHO.

    Both RE agents and appraisers are also good resources. Both have spent months nursing a single loan thru underwriter hell. Ask them, most will be glad to share what they know.

    Also, credit unions and small local/regional banks tend to be much, much better than the nationals and are the only true competitor of the broker. Typically, the smaller the bank, the better the results.

    After Dodd Frank, lenders no longer are mandated to use the HVCC appraisal model and many of the smaller banks have now switched back to using local independent appraisers, at a much lower cost to the borrower with more transparency.

    The HVCC model enables the majors to vertically integrate the appraisal process into the corporate structure, so the appraisal is a now a "profit" center rather than a "cost" center. The cheaper the appraisal cost, the more profit made off the appraisal. This model ensures incompetency as it favors the out-of-town, newly licensed appraiser.

    This model also invites corruption as it gives senior underwriters direct access to the appraisal reviewers, who have the ability to affect changes their employer/client needs to minimize risk and maximize profit.

    It also costs the borrower about $200-$300 more and is an unchangeable crapshoot regarding accuracy.

    And yes, major Bank AMCs outsource review appraisal work to India and Mexico. Check out the article on BoA's Landsafe in Forbes.

    Very handy to have the legal void of a nearly unregulated, Bank-owned Appraisal Management Company, doing the dirty work offshore.

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