Mortgage Lenders, Banker, Brokers, Oh My
Shopping for a home mortgage can be a daunting task. Not only do you have to shop the dizzying selection of mortgage loan products with varying mortgage rates and costs, but with the plethora of mortgage companies out there now you have to choose the type of mortgage lender too.
Choosing the mortgage lender by the type of organization should not be a challenge. Each lending institution will certainly have its strengths and weaknesses but the type of organization should not generally be a deciding factor for obtaining a home loan. Different mortgage lender will have differences in the variety the home loan offerings and mortgage rates between lenders and between regions where they operate but the differences in loan types is generally quite small.
There are exceptions to choosing a mortgage lender, for instance, if you are looking for a construction loan, not all lending institutions will be competitive for this type of home loan. Prospective home loan borrowers need to shop and compare loan products between mortgage lenders when the home loan request more specialized but this has little to do with the type of mortgage company itself.
The regional differences in products and the availability of home loan types and prices applies to brokers, bankers, credit unions, savings and loans and other licensed institutions that originate residential mortgages.
The term mortgage lender has usually been reserved for the financial institution that provides the actual funds at the home loan closing. However, since mortgages are frequently transferred, bought and sold in such a quick time frame, whether the institution that originates the loan is in fact the mortgage lender has become insignificant and most all mortgage originating companies are referred to as the mortgage lender.
There are hundreds of mortgage lenders and mortgage brokers available that will prequalify and preapprove a mortgage loan for almost any consumer looking to make a new home purchase or refinance an existing home loan. Major categories of mortgage lenders include:
Banks. A bank, commercial bank or savings and loan may have the largest financial backing and some of the strongest regulations in the mortgage lending marketplace. Banks and savings and loans which are also called thrift institutions were historically the largest traditional mortgage lenders of residential home mortgages. Mortgage brokers began taking a large share of mortgage origination’s starting in the 1980’s but the savings and loans and banks remain a major source of funding for home mortgage loans and for the time, appear to be perceived by consumers as being more reliable and responsible with mortgage lending.
Some banks will sell the home loans they originate shortly after funding the mortgage other banks don’t sell their home loans to other companies after closing. These banks collect the mortgage payments, manage the escrow accounts for taxes and insurance and maintain the relationship for the long term, but this process is becoming less frequent with home loans being bought and sold regularly and the servicing of the home loan either being retained by the bank or sold along with the loan. When home loan product began operating like a commodity and were bought and sold with regularity, the banks position in the mortgage lending market place diminished measurably however, the credit contraction has a brought a resurgence in mortgage origination’s being handled by banks.
Mortgage Bankers. Mortgage bankers often sell their mortgages to large mortgage servicers or to Fannie Mae and Freddie Mac, two major government-sponsored enterprises that specialize in buying residential mortgages from lenders. Mortgage bankers borrow money from banks or pools of investors, underwrite the loans, and sell them to investors for a profit. Mortgage bankers often receive a fee from these investors for servicing the mortgage if the mortgage banker retains the servicing for the home loan they originate. Mortgage servicing includes collecting monthly payments, sending out loan statements, and collecting on late payments.
Mortgage Brokers. A mortgage broker represents a wide assortment of products and can price home loans with great deal of flexibility since they often work with many mortgage lenders. Mortgage brokers do not make the mortgage loan but rather facilitate the process of obtaining a mortgage loan. The mortgage broker processes the mortgage loan request and may shop a home loan application among different mortgage lenders to find desirable home loan terms for the borrower. In exchange, the mortgage lender and/or the home loan borrower pays the broker a fee. This, however, does not necessarily mean that the consumer will get the best mortgage rate and home loan program or the loan officer’s best mortgage rate and loan program.
Credit Unions. Credit unions operate similar to banks but are owned by their members. Credit unions may offer very attractive home loan terms, particularly if they evaluate their entire banking relationship with you. Since they are nonprofit institutions, credit unions may offer attractive mortgage loan rates to their members. Like commercial mortgage lenders, credit unions sell their loans to Fannie Mae and Freddie Mac to maintain access to new sources of funds. The National Credit Union Administration (NCUA) regulates the credit union industry.
Mortgage bankers, credit unions, savings and loans and possibly more companies can offer home mortgages. With the rapid movement of mortgage money it may be a mistake to rely on one type of mortgage institution as being best as opposed to which mortgage company is chosen. Deciding which type of mortgage lender is best will rarely make any difference in the home loan process. Deciding on the mortgage lender or the originator is the important choice. The variability between mortgage companies in any one category of mortgage lender is so small as to make choosing a mortgage company by the type of organization a difficult task.
It is more important to choose a good loan officer and a reputable firm regardless of the organizational structure. Measuring a good mortgage lender or originating company may be a difficult task. During cautious times, more consumers rely on the regulation and size of the banking industry as the number choice for a mortgage loan. The structure of the mortgage lender is not what makes the home loan right but the ability to have ample resources to call upon and a known regulatory body in which to voice a complaint reassures many consumers that applying for a new home loan at a bank is the right choice. Many mortgage lenders have gone out of business, have been sold, or have stopped making certain kinds of loans, leaving their customers stranded and further reinforcing the apparent advantage held by banks.
Given this conclusion it is still essential to compare the mortgage lenders services and history since the services of that branch or that office is what makes the home loan right for any individual consumer.
Once it has been determined that a bank, mortgage lender or mortgage broker is offering the right home loan product at a favorable mortgage rate and overall cost, measuring quality can be difficult attribute to measure until the home loan process is complete. Quality can generally be regarded as prompt, efficient service from the mortgage rate quotes to question and answer sessions regarding the loan applicants’ needs to a trouble free home loan closing. Measuring the quality of those services in advance may be a challenge.
Along with shopping the source for the home loan, a potential home loan borrower will have to shop the total cost of the home loan including the mortgage rate, fees, points prepayment penalties the loan term and a host of other items.
A good starting point to choosing the right mortgage lender is to perform ample research on the home loan program and shop for the mortgage lender over the phone with sufficient knowledge on the types of home loans and how they are processed. Be sure to call more than one mortgage lender and use the online mortgage calculators to help compare mortgage rates and costs. Compare the services by measuring knowledge of the home loan programs, the questions they have for you and ask for references. Be an astute shopper and compare the mortgage loans, the mortgage rates, the closing costs and test the resources and knowledge of those mortgage lenders who are ultimately paid to help you obtain your mortgage loan.