This Week's Blog

There is much confusion among consumers about the different types of loan originators/officers and which type is really best to work with when trying to obtain a new mortgage.  My goal with this article is to explain the three types of mortgage originators and go through the pro's and con's of each type. 

The first type of mortgage provider is perhaps the most common- the Bank. A retail loan officer is one who provides mortgage loans directly through the banks they work for. Examples of these would be a loan officer that works directly with Bank of America, Wells Fargo, SunTrust and so on.  When a loan is originated through a retail bank, the origination, processing and underwriting is done by the bank.

The benefits of working directly with a bank are:

1-You often have the opportunity to also have your checking/savings accounts with the same bank which is important to some people.

2-You can often walk directly into a local branch and speak with someone regarding the servicing of your account instead of calling an 800#.

3-Some people feel a sense of security by working directly with a bank, although there is actually no more security than the other entities.

The cons of working directly with a bank are:

1-You are limited to that specific's bank loan programs and interest rates.  If the bank does offer the specific program you need, you will not be able to access that program.  Also, the interest rates are fixed with little ability to negotiate and you only have access to that bank's rate sheets.  This is more time consuming to the consumer if they wish to shop around for the best rate and program available to them.

2-The underwriting or operations centers are often seperate from the loan originators.  This means to you that your loan officer is less likely to know and have a good working relationship with the processor and underwriter.  A good working relationship with the processor and underwriter is especially important in this market with all of the program changes.

3-Bank loan officers are currently not required to be licensed.  This means that there is no standard test or anything that they need to pass in order to originate your loan.  Since your home is typically your single largest investment, I don't know that I would want an un-licensed loan officer handling that transaction and feel confident in their ability to advise me correctly based on my specific goals.

The next type of mortgage provider I would like to discuss is the mortgage broker.  A mortgage broker does not work for a bank, but rather has agreements with many banks that allow them to sell the bank's mortgage programs.  When a loan is originated by a broker, the processing and underwriting is done by the bank.

The benefits of working with a mortgage broker are:

1-A broker can shop around for you to the many different banks that they have relationships with. This saves you, the consumer, a lot of time in looking for the best rate that is on the market.

2-Since a broker has access to multiple banks, they have access to many types of loan programs that a single bank may not have access to.

3-A mortgage broker is required to be licensed and pass both a national and state exam.  This ensures, at least on some level, that the loan officer has the requisite knowledge mandated by the state.

The disadvantages of working with a mortgage broker are:

1-Since they don't actually work with the banks they are representing, there is a higher risk for the banks. This often results in additional hoops that you will have to jump through to ensure your loan is approved and is a profitable one for the bank.

2-Brokers typically don't have the opportunity to know and develop a relationship with the bank underwriters.  This means that they may not be able to be as proactive or foresee underwriting challenges because they don't have the opportunity to speak with them.  This is especially important on loans that may be more challenging or not as black and white.

3-As banks are feeling the pressures of foreclosures and bad loans on their books, several have made the decision to exit the wholesale business which means that brokers will not have access to their loan programs.  Bank of America is a recent example of this.

4-There are some loan programs that mortgage brokers do have access to and are only available to banks.  An example of this type of program is NC Housing which offers many 1st time home-buyer programs as well as down payment assistance.

The last time of loan originator I would like to discuss is a corresponent lender.  This type of lender is a hybrid between a retail bank and a mortgage broker.  A correspondent lender will typically fund the loan at closing and then transfer the servicing to the intended bank.  When a loan is originated through a correspondent lender, the origination, processing and underwriting is completed by the correspondent lender and not the bank.

The advantages of working with a correspondent lender are:

1-Loan originators have access to multiple banks similar to mortgage brokers.   This saves you time in needing to shop around yourself to multiple banks, and you can focus on finding a loan officer you feel comfortable with.

2-The processing and the underwriting is done by the correspondent lender and not the retail bank. This is a huge advantage to you as a consumer because your loan officer can develop the relationship with the processor and the underwriter.  This is especially helpful on potentially challenging loans.  At Primary Residential Mortgage, both the processing and underwriting is done in the office which means that if I have a question, I can just walk into my underwriter's office and ask the question and work through the loan approval with them.

3-Since a correspondent lender has access to multiple banks, they also have access to all of the bank programs as well and are not limited.  Another advantage over a broker in this case is that they also have access to programs that are typically limited to retail banks such as NC Housing, down-payment assistance and other 1st time homebuyer programs.

4-A correspondent lender is also required to be licensed and pass both a national and state exam. 

The disadvantages of a correspondent lender are:

1-Correspondent lenders do not have retail branches.  This means that you as a consumer may not be able to walk in a branch and talk to someone about your loan.  This wouldn't be the case though if the bank that bought your loan such as Bank of America, Wells Fargo or SunTrust had branches in the area you live. 

2-Some consumers feel more comfortable and secure working directly with the bank even though there is not technically any more security having your loan originated through a retail bank.

I hope that this analysis helps you to better understand the different types of loan originators and the pro's and con's of working with each.  As always please don't hesitate to contact me with any questions that you may have.