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