Mortgage brokers facilitate matches between borrowers and lenders and earn compensation either from either party (but never both). They offer an array of loan products and access to numerous deals in their marketplace.
Experienced advisors also specialize in finding solutions for borrowers facing unique circumstances, while organizing required paperwork and managing communication between lenders and borrowers.
Correspondent Lenders
Pure mortgage brokers act solely as middlemen, collecting information about your loan scenario and then “shopping” it around to multiple lenders for approval. In return for their services they typically charge an origination fee or service charge fee.
Correspondent lenders, on the other hand, originate, underwrite and fund mortgage loans themselves before selling them off to investors such as pension funds or insurance companies for sale on secondary markets as mortgage-backed securities.
Correspondent lenders often take on additional duties, including collecting mortgage payments and maintaining an escrow account for their borrowers. By doing this, they ensure they keep in contact with buyers throughout their home buying experience to make sure everything runs smoothly while answering any queries or providing guidance if any arise.
Since correspondent lenders work with numerous mortgage investors, they typically offer more lending products. If you meet one or more investor’s requirements for qualification, then these lenders may offer loans you couldn’t get otherwise with direct lenders despite similar credit requirements.
Example: Assuming you’re an eligible veteran looking for their first home and decide to work with Rocket Mortgage(r), Rocket will handle everything from application, documentation, appraisal scheduling, underwriting and funding – as well as working with Obsidian Mortgage as its local correspondent lender – including collecting mortgage payments, forwarding them on to investors, maintaining an escrow account for client, etc.
Since correspondent lenders essentially fulfill the functions of mortgage investors, they must abide by stringent rules and guidelines set by these investors – any oversight could lead to their loan being returned and additional fees being assessed on borrowers.
As the housing market recovers and interest rates increase, correspondent lenders face increasingly stringent regulations to navigate. Some have even exited or reduced their mortgage offerings completely – leading some borrowers to look elsewhere – such as non-correspondent lenders or mortgage brokers.
Mortgage Brokers
Richard Windeyer at Mortgage Choice acts as an intermediary between lenders and borrowers to sell loan programs, earning compensation either through charging fees directly to borrowers or earning commissions from lenders they introduce to them. Mortgage brokers provide many advantages to borrowers such as being able to compare offers from multiple lenders at once, saving time and effort, having expertise in the industry as well as saving themselves the hassle.
Mortgage brokers also have access to more lender programs than other types of lenders, giving borrowers more choices in selecting a type of loan and finding one with competitive interest rate and terms. Unfortunately, mortgage brokers may not work with all lenders and may not always know which program would best meet the borrower’s needs.
Brokers offer an invaluable service for consumers comparing loan options from both correspondent and direct lenders, saving both time and effort by managing the application process and handling credit inquiries for them. Furthermore, mortgage brokers provide more loan products such as jumbo loans and adjustable rate mortgages than typical lenders do.
Working with a mortgage broker can also provide unique circumstances or those facing recent financial challenges with access to lenders who would not normally approve them for mortgages, because they do not form part of Fannie Mae or Freddie Mac’s pool of approved lenders. This can make qualifying for mortgage easier.
Before engaging a mortgage broker, it’s essential that you understand their payment. Some brokers collect a commission from lenders they introduce while others charge fees directly from borrowers. If paying a broker fee directly yourself, make sure you ask how they will be compensated and how this could influence the cost of your loan.
Notably, some mortgage brokers don’t maintain in-person contact with their borrowers and only operate via telephone and the internet – this can present problems if you require someone who will answer questions, take your application in person and meet face-to-face during the loan application process.
Direct Lenders
Direct lenders are financial institutions that offer mortgage loans directly to consumers without the use of third parties like mortgage brokers. Direct lenders use either their own funds or borrow from outside investors in order to fund mortgage loans directly, using either loan origination fees, yield spread premiums or the interest earned on principal balance. There are two primary forms of direct lenders – mortgage banks and portfolio lenders. Both types are responsible for originating, underwriting and closing loans but generate revenue differently; mortgage banks receive compensation through loan origination fees while portfolio lenders earn income via loan origination fees yield spread premiums or interest earned on principal balance of the loans they fund directly.
Direct lending offers a more personal financial experience by working closely with their lender. Direct lenders are often proactive about creating programs and products tailored to homebuyers in today’s market, while their simplified loan application and approval processes speed up closing processes while taking advantage of time-sensitive financing opportunities.
Direct lenders tend to facilitate communication more directly, helping keep everything open and on the table throughout the loan application process. Furthermore, many retail lenders have branches located all around the country that can provide in-person service if that suits your preference better.
Working with a mortgage broker may save time by eliminating multiple phone calls and emails between parties. These professionals have established relationships with multiple mortgage lenders and can shop your loan around to find the most favorable terms and rates; they may even help you qualify when traditional automated underwriting systems cannot – for instance if recent bankruptcy or unstable employment status make qualifying difficult.
Mortgage brokers may help simplify the mortgage application process while helping you locate a lender offering down payment assistance programs or other incentives. Since brokers are compensated by lenders they connect borrowers with, their services may cost more than those provided directly from lenders.
Mortgage Bankers
Mortgage bankers and brokers both serve the same function: helping people acquire mortgage loans. But while both types of loan officers provide similar services, there are important distinctions between them. A mortgage banker works for an institution that funds, underwrites, approves, and closes the loans they originate whereas mortgage brokers are federally licensed firms or individuals who sell loan programs on behalf of lenders but do not lend money directly.
Mortgage brokers are adept at connecting borrowers to a wide array of loan products than mortgage bankers due to their established relationships with various lenders. By answering questions and filling out applications from different lenders, mortgage brokers can match borrowers with the ideal loan solutions based on their individual circumstances – FHA loans, conventional home loans and jumbo loans among them.
Another difference between mortgage bankers and brokers lies in their employment by financial institutions; mortgage bankers must abide by any guidelines set forth by their employers when structuring and underwriting mortgage loans for clients. Furthermore, mortgage bankers tend to be less flexible than brokers as they must adhere to rules and regulations set by their employers.
Mortgage brokers tend to be more accommodating as they aren’t tied down by any particular institution’s rules and regulations. Mortgage brokers can shop a selection of lenders on your behalf until finding one that’s best-suited to you, whether that lender be correspondent, direct, or portfolio mortgage lender.
Mortgage bankers and brokers differ when it comes to how they are paid for their services. Mortgage bankers tend to be employed by financial institutions and receive either a salary or performance bonus; mortgage brokers on the other hand typically rely on fees charged directly from borrowers or commissions from lenders as compensation; these fees may either be payable in one lump sum at closing or can be added into the overall loan balance.
