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The Advantages of Different Types of Mortgage Lenders
What kind of lender is "best?"
If you talk to a loan officer, he (or she) will probably say the lender they work for is "the best" and give you a list of reasons why. If you meet the same loan officer years later and he works for a different kind of lender, he will give you a list of reasons why that type of lender is better.
Realtors have differing opinions and, as a group, their opinions have changed over time. In the past, most would often recommend portfolio lenders - because they almost always closed the deal. As time passed, mortgage bankers and mortgage brokers became more important, and agents switched along with the changing times.
Most often a Realtor will direct you to a specific loan officer who has demonstrated a track record of service and reliability -- or a loan officer who works for a lender affiliated with their real estate office.
It is often more important to choose a good loan officer, not the institution. Loan officers have two jobs. One is to be your advocate in getting the loan approved. The other is to deliver quality loans. You want someone who has proven dependable and ethical in the past -- someone you can trust.
As for lending institutions, each type of lender has strengths and weaknesses. Quality within each branch or office can vary, depending on the loan officer, the support staff, and a variety of other factors.
Portfolio lenders are usually Savings & Loan institutions, and sometimes banks. They are called "portfolio" lenders because they tend to originate loans for their own portfolio (usually adjustable rate loans), not for resale in the secondary market. The distinction gets blurred because most portfolio lenders also engage in mortgage banking.
They will often pay more compensation to their loan officers for originating a portfolio product than for originating a fixed rate loan. You may also find that they are not as competitive as mortgage bankers and brokers in the fixed rate loan market, though this is no longer a hard and fast rule.
It is often easier to qualify for a portfolio loan, so they are often a lender of "second resort" for those who cannot qualify for a fixed rate loan. If a loan officer is steering you towards "sub-prime" loans, it might be wise to check out a portfolio lender first.
Portfolio lenders also can serve as "niche" lenders because certain things are more important to them than meeting the more standardized underwriting guidelines of a mortgage banker. An example would be a savings & loan which is more concerned with an individual's savings history than being able to fully document income.
If you apply for a loan with a portfolio lender and you are declined, that's it. You're done. If you still think you should be able to qualify for a loan, you have to start over somewhere else.
Their major strength is that you will recognize their name. Banks and Savings & Loans often operate as portfolio lenders, but as the lending world has changed, most also operate as mortgage bankers and sometimes brokers.
If we are talking about the larger mortgage bankers, you can count on them having several strengths. For the biggest ones, like Countrywide or Wells Fargo, you will recognize the "brand name."
Usually, larger mortgage bankers are much better at promoting special first time buyer programs, cooperating with states and local governments. These programs will have slightly lower interest rates and costs than the current market rate. To qualify for these programs, your income must usually fall below a median average for the area and you must not have owned your residence for the last three years.
Mortgage bankers may have problems just because they are "too big" or they may operate like well oiled machines. A lot depends on the branch or office you deal with.
If you're applying for an FHA or VA loan, sometimes mortgage bankers are more adept at some of the intricacies involved than a mortgage broker. For example, the tract you are buying in may not be "approved" by FHA or VA. Mortgage bankers often have more clout in getting it approved than would a small mortgage broker.
If your home loan is declined for some reason, many mortgage bankers allow their loan officers to broker the loan to another institution. However, because your loan officer is so used to promoting his own company's product, he often loses track of the "niches" offered by certain wholesale lenders.
Basically, wholesale lenders use mortgage brokers as their loan officers. They offer a lower rate to the broker, the broker adds on his compensation, and the rate is usually about the same as you would get using a mortgage banker. Sometimes the rate is lower, sometimes higher, depending on how much compensation the broker adds on.
Mortgage brokers also learn the "hot points" of various wholesale lenders and can handpick the lender for a borrower which may be unique in some way. He will be able to submit your loan to either a portfolio lender or a mortgage banker. Another advantage is that, if a loan gets declined for some reason, they can simply repackage the loan and submit it to another wholesale lender.
One additional advantage is that mortgage brokers tend to attract a high number of the most qualified loan officers. This is not universal, because mortgage brokers also serve as the training ground for those just entering the business. If you have a new loan officer and there is something unique about you or the property you are buying, there could be a problem on the horizon that an experienced loan officer would have anticipated.
A disadvantage is that mortgage brokers sometimes attract the greediest loan officers, too. They may charge you more on your loan which would then nullify the ability of the mortgage broker being able to "shop" for the lowest rate.
Borrowers cannot get access to the wholesale divisions of mortgage bankers and portfolio lenders without going through a broker.
copyright 2000 by Terry Light and RealEstate ABC, modified 2002