8 Reasons to Get Your Mortgage From a Banker

Have you ever wondered what the Building and Loan Bank in "It's a Wonderful Life" would be like in real life? 

Steve Habetz Jr., the vice president of Stamford Mortgage -- and a 30-year veteran of the mortgage industry -- explained that's the type of bank he works for. 

Steve sent me some feedback on my article, "7 Reasons to Get Your Mortgage From a Broker," and suggested that since the financial crisis, loans made by brokers have been under intense scrutiny -- and that's not how valued customers should be treated.

Without a moment's hesitation, I replied to Steve's email and asked for an interview.

He graciously agreed, and we spent over an hour discussing the benefits of buying a mortgage from a bank. Here are eight of the most important reasons.

1. Loans get approved faster
After shopping your loan around to lenders, it may take brokers a few months to push your loan through. Since banks have the final say on loan approval, it can substantially speed up the process. 

According to Steve, he will consistently close loans in a matter of weeks -- and on occasion, even less.

2. Banks make the rules, so only banks can bend them.
QM loans -- or, quality mortgage loans -- are essentially Fannie Mae and Freddie Mac's guidelines for buying mortgages. And in the past few years, these guideline have become extremely rigid.

Steve suggested, "Since we hold a large portion of the loans we make, we have the flexibility to make non-QM loans.

This is the big one, because banks hold assets (loans), the full brunt of bad loans falls on their head. This gives banks the incentive to make good loans, and also the autonomy to make loans that don't fit into Fannie Mae and Freddie Mac's definition of QM loans.

In these cases, Steve suggested, "If I've got someone who really wants to be a homeowner, and has always paid their bills... that's smart lending, it's good for the economy, and it's good for our country."

3. "The vast number of lenders available to brokers has shrunk."
Brokers depend on outside lenders to pick up the loans they make. According to Steve, however, "Since the financial meltdown, broker loans have been viewed by the marketplace as toxic assets."

Steve explained, "There are a lot of good, qualified, honest, and knowledgeable mortgage brokers in the marketplace, unfortunately none of them have the capacity to buy back the loans they make." Steve would go on to say, "As a result, borrowers need to know they will be subject to a far higher level of scrutiny."

4. Brokers have no control over two key aspects of the loan process
Steve suggested that not only is he there for the person getting approved, he's there for the loan in two key phases of the process: approving the loan, and closing the loan. 

Steve went on to point out that since his bank holds a majority of the loans they make, he can be there for customers for years after the loan is made. 

5. "As a bank employee, I am registered with the NMLS."
In my previous article, I noted that brokers will always have a license -- while that may not always be the case for bankers. This is important because the licensing process -- which varies by state -- includes a background check and continuing education.

To which Steve jested:

Dave... have you ever worked for a bank? Banks don't let you hand out its money without a full background check. And most banks require significantly more hours of continuing education.

While Steve is a banker, he took the brokers continuing education course this past December -- which, in all, took about eight hours. His bank, on the other hand, demands 20 hours of continuing education each year.

6. Turns out banks have one-trick ponies, too
Mortgage brokers do one thing and one thing only, and that's handle mortgage loans -- and for banks, it tends to work the same way.

Steve explained -- while there are some exceptions -- normally there's a team for each type of loan. He noted that it's better to be an expert in one area than to have even small gaps in your knowledge about several different types.

7. Bankers are also paid on commission
Bankers, unlike brokers, have some options as to how they'll be paid. They can be paid on salary, strictly commission, or a combination of the two.

It may be awkward to ask your banker whether they'll earn a commission, but it's an important question. This is because brokers -- regardless of their ability level -- will be paid on commission. Bankers, on the other hand, will only choose to make  a commission if they're confident they can get the job done quickly and efficiently.

8. We can all agree, the best loans happen in person
Whether borrowers choose a banker or a broker for their mortgage, Steve agrees the best policy is sitting down and talking over your options. 

Buying a mortgage will be one of the biggest decisions you'll make in your lifetime, and it deserves the full attention of someone sitting in front of you -- I'm looking at you, Quicken Loans.

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Read/Post Comments (10) | Recommend This Article (13)

Comments from our Foolish Readers

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  • Report this Comment On January 25, 2014, at 7:26 PM, ianivarga wrote:

    Totally wrong and I defy anyone to prove otherwise.

    Working for a mortgage broker I can run circles around any banker in both getting a loan approved faster and being able to offer a wider range of loan programs.

    Remember, brokers work at the wholsae level and they have access to both rates and programs most bankers wish for.

  • Report this Comment On January 25, 2014, at 10:20 PM, cscott wrote:

    as an expert being in real estate: I disagree with most of what the article says here about the advantages of going direct to a bank vs thru a loan broker. And ,no, I do am not at all involved in making loans so I have no vested interest. First of all, who is this "banker" ? Most jumbo loans (which is just about ALL loans in CA and NY's high end markets) are thru big banks ,aren't they? So, who is the "banker" ? Sounds like the image is one of a single person who holds your hand throughout the whole process thru closing. We wish! More likely, the person who takes your app talks to underwriting thru a blind process and then gets back to you. When it's time to close,again, you are in the hands of the closing dept. Of course all of that is true when you go thru a loan broker as well--but it is deceptive to imply you come out ahead by going direct to a bank. Besides, loan brokers are supposed to be able to tell you by looking at your documentation THEMSELVES (meaning your assets, your tax returns, your bank statements,etc) whether you are likely to have "issues". In other words ,they tell you in a day vs filling out an app at Bof A and waiting for underwriting to tell you they have a "complete" file and then waiting even longer for their decision. A woman I know waited 3 weeks to find out the obvious: that she should never have wasted even 5 minutes since my loan broker told her after 5 minutes of analysis that she does NOT meet the guidelines of ANY US banks based on her visa status and the nature of her income. Again, laon broker took 5 minutes whereas a big bank took weeks. I rest my case!

  • Report this Comment On January 25, 2014, at 10:40 PM, dtriol wrote:

    Brokers can screw you over. They make a rebate on you...........also called a YSP....yield spread premium.

    I have known brokers to size up individuals and .....see if they are the shopping type. Then give them a rate of 6.75%...when they deserve 6.%

    Also i have seen brokers freak out in a rate enviroment, where rates are going up....they will delay the loan to make YSP....otherwise they make zilch if they didn't lock in the rate they promised. Or if they goofed on the lock and forgot to make profit.

    I think a bank is better.....But talk about about bankers

  • Report this Comment On January 25, 2014, at 10:43 PM, dtriol wrote:

    I am a real estate sales guy......I just saw John Stewart make fun of the whole banking industry..................It is a complete JOKE>

    The best thing to do is shop 5 brokers simultaneously....then see who can match who.

    Hopefully you get a free loan.

  • Report this Comment On January 25, 2014, at 11:11 PM, mycomments wrote:

    I will state a few things that this 'bank loan agent' incorrectly stated and misled readers about his '8 reasons...':

    1. mortgage brokers or agents work for mortgage brokerage firms are all real estate license then the State that issued the license will sponsor the agent to NMLS (National Mortgage Licensing System) to further conduct background check, etc before issue approval for this real estate license to originating mortgage. customers can verify mortgage loan agent through NMLS site under 'consumer access' links,

    2. mortgage brokers can fund loans in less than 2 weeks too. with volumes lower due to lack of refinance, both retail and wholesale channels can speed up the process to fund and close loans faster,

    3. mortgage brokers can obtain loan approval through 'desk top underwriting' or DU which is a processing online. turn around time for decision is less than 5 minutes after submission. with the DU approval, brokers can submit the loan package to any funding lenders,

    4. all wholesale channels (namely mortgage banking that are funding loan from brokers) have the NON-QM programs. rates are higher compare to the QM new guidelines which in effect 1/10/2014,

    5. Brokers that are in correspondent channel are also have access to submitting loans to banks wholesale channels, like Citi, Chase, Wells Fargo, etc... For Brokers remain in non-correspondent channel, there are plenty to lenders with competitive rates and programs which are all part of the big banks funding behind being the investors of those funding,

    As a loan agent with mortgage brokers since 1991, I have seen both brokers and bank retails each have its own strong areas. Pricing (rates) are back and forth in term of competitiveness base on seasonal promotion, etc. Keep in mind (again), all lenders are obtaining credit line through large banks (as investors). So technically, the retails bank also have a hidden channels (which is wholesale channel) that are competing business with each others. And that is what make brokers more competitive and more productive in term of closing volume because borrowers that are working with brokers have more choice. Whereas borrowers that are working with one bank retail, they only have one lender option,

    There are always good and bad in live. Borrowers should shop around and compare for both pricing and services. Good luck to all the borrowers out there!

  • Report this Comment On January 26, 2014, at 12:47 AM, Mk25 wrote:

    I can't comment on the Broker aspect, but would recommend that you be very careful about going to your local bank branch to get a mortgage. The branch associate most likely has no clue about mortgages and is under so much pressure to sell you on anything that you will receive bad advice. My suggestion is that you do your own homework so you do not get ripped off and put in a bad position that you can't get out of.

  • Report this Comment On January 26, 2014, at 11:04 AM, sabebrush6 wrote:

    I used a bank once for a mortgage and NEVER again.

    I set up a 10% construction loan with the provision of converting to a mortgage loan @ 7% in 90 days (completion of build) and the bank refused to convert because they said they didn't make as much and by law they didn't have to.

    I pointed out the clause that said it would be converted to the lower mortgage interest rate and the bank pointed out in their bank manifesto that all rate changes are at their discretion and refused.

    I refinanced at a mortgage co. Screw the banks. I have never dealt with one since. Use a credit union. At least their honest & no back door stuff.

  • Report this Comment On January 26, 2014, at 11:51 AM, Mtgman wrote:

    I work for a bank. There are things we do better (jumbo, portfolio products, Low to moderate income offers, and 2nd mortgages/helocs). There are also areas where brokers have advantages (access to multiple lenders pricing, higher comp per transaction, finding lenders without overlays, etc).

    In short there are good loan officers in both channels and a consumer should choose whomever they feel most comfortable with.

  • Report this Comment On January 27, 2014, at 11:05 AM, seniorlender wrote:

    As a broker with 13 years in a small shop and three for a large bank, I can tell you that the broker makes more money than the banker. They also rebate more fees than any bank out there that's not trying to sell you some lame checking account package. As far as time to close, the author is dangerously close to being lied to if not flat out lying himself. No broker holds up a closing because he's trying to time this market. As far as education goes, brokers have had to go to continuing education and take state and national tests for years, while Dodd-Frank didn't affect bankers for years. The QM rule is another goverment gimmick to get banks to hold more loand in-house, so if your credit is awful, you may have a shot at a bank, but don't be looking for anything competitive on rate.

  • Report this Comment On February 11, 2014, at 3:14 PM, lindafleisch wrote:

    As a mortgage broker for over 15 years, and having worked at a bank for 13 years, I know what the reality is between the two. It's laughable that a bank can approve a loan faster than a broker. I can get loan approval in 2 days with a complete package. Most banks are weeks for loan approval. And as for them bending the rules, they are the worst at bending any rule. I get many loans from the banks declining the loan and then when I submit to one of my lenders, they are sold to the same bank that declined them. As a broker, I have much more flexibility in choosing a lender with guidelines that fit my client....whereas at a bank, there are only their guidelines.

    As for how we as brokers get paid, we disclose upfront what our commission is and we give a credit from the yield spread of the rate to cover that origination fee....anything over the amount we have set as our origination fee goes back to the borrower. I have given hundreds of thousands back to my borrowers and this concept of the brokers keeping the yield spread is absurd. What is absurd is that the banks do not only NOT disclose what they make on the loans, they also make money after the loan closes with a service release premium that they never disclose. Everything a broker makes is in the open and upfront....nothing a bank makes is ever disclosed.

    I also want to know how many times does the bank pre-underwrite a borrower's loan and tell them that they can't qualify....that would be zero...because they aren't able to do a mortgage broker, I can so that I don't waste their time or their realtors time as well...... so bank vs is your best bet every time

    Linda Fleischmann, CMC

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Dave Koppenheffer

Dave Koppenheffer, is a contributor for the Motley Fool's financial sector. And much like Dwayne "The Rock" Johnson, when he speaks, he speaks with an earnest vibe and an earnest energy.

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