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Banker or broker -- which is better for your mortgage?

Here are two questions that haunt home buyers: Should I use a mortgage broker or go with a banker? And what's the difference, anyway?

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The short answer to the first question is this: It doesn't matter much whether you use a broker or banker. You can get a good deal with either. The important thing is whether you get a good rate and pay fair closing costs, not who you get the loan from.

The majority of people find that better deal with mortgage brokers. About 65 percent of home loans are originated through brokers.

From the consumer's standpoint, there's not a whole lot of difference between a mortgage broker and a mortgage loan officer for a bank. Both of them describe the various loan types that are available and help the borrower choose one, collect the application and supporting paperwork, and keep in contact with the borrower until closing day.

The main difference behind the scenes is that a mortgage banker lends the bank's own money. The loan officer's employer -- the bank -- decides whether to underwrite the loan and at what rate and terms. A broker doesn't lend his or her company's money. The broker introduces the borrower to a lender and does much of the paperwork, but the lender decides whether to underwrite the loan and at what rate and terms. The broker doesn't make those decisions.

Big vs. small
Most brokers own or work for small businesses. Loan officers for banks tend to work for corporate behemoths. In large part, the decision whether to choose a broker or banker depends on which atmosphere you feel more comfortable with: a friendly mom 'n' pop shop or an efficient corporate office.

A broker might make you feel like you're getting lots of personal attention, but you might have no one to turn to if the broker makes a mistake. A bank might treat you impersonally, but you can go up the corporate chain of command if the loan officer messes up.

Brokers often boast that they have access to a broader range of loan programs because they work with multiple lenders. "Because I'm able to shop against the whole region of lenders and not go to one or two, I can see who's best priced that day and offer a better deal," says Brian Peart, president of Nexus Financial, a brokerage in Atlanta.

That's just not so, says Bob Walters, a banker who is vice president of Quicken Loans. "A good mortgage banker like us has every program that a broker might have access to," Walters says.

Part of Walters's job is working with Wall Street, developing new loan programs. For example, he recently introduced a home equity line of credit that can be used in the first lien position to refinance a loan or even buy a home. Brokers, he notes, don't conceive new types of loans and bring them to market. They just shop for what's available on behalf of the consumer.

On the other hand, your loan officer at the local bank branch doesn't brainstorm new loan types around a Wall Street conference table, either. The loan officer does what a broker does: recommends an available loan type and takes the application.

"There's really no difference" between a broker and banker, says Peart, the broker. "The key is choosing a company that is referred by people whom you know and trust."

Go for reputation
This is an area where the broker and banker can find uneasy agreement: the importance of working with someone reputable.

"The thing about brokers that bugs me the most is there's no regulation," Walters says. That's an exaggeration -- the National Association of Mortgage Brokers notes that the industry "is regulated by 10 federal laws, five federal enforcement agencies and over 45 state laws or licensing boards." But banks are more tightly regulated.

Warming up to the subject of mortgage brokers, Walters says, "A lot of them sold cars three months ago. They are on the fringe. They sold HerbaLife and then cars. When the refinancing boom goes away, they'll go somewhere else."

Sure, there are good, reputable, knowledgeable brokers, Walters says, but they get overrun by unscrupulous neophytes during fat times such as the refinancing boom that's winding down. "You have a much better chance of not dealing with a scoundrel when you deal with a large company that has its reputation on the line," Walters says.

Brokers have heard it all before -- that they're unscrupulous and unregulated and don't know the business. They point out that brokers get much of their business through referrals, so their reputations are on the line, too.

Brokers say their best defense is to let the money do the talking. Peart says he often can beat a bank's best rate by one-eighth of a point or more, with competitive fees, because his costs of operating a business are lower.

Consumers, he says, should shop around -- go to a banker and a broker. Compare good faith estimates and choose the better deal.


-- Posted: Sept. 25, 2003




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