When looking for a home loan, you have the option of using a mortgage bank, bank/credit union, or mortgage broker. From a distance they may seem quite similar, but there are significant differences that can affect your experience.
Let’s break it down:
Mortgage Banks
Allied Mortgage Group is a mortgage bank. Mortgage Banks are self-contained, full-service organizations that typically only offer residential mortgages. We are specialists in home loans. Mortgage banks have a full portfolio of investors and products catered to a wider variety of clients. We are not beholden to only one institution for our rates, pricing, and program availability. This is significant as individual banks will ebb and flow depending on their appetite and market conditions. We are not short-sighted and make decisions based on the long-term big picture so that we can provide clients with superior service for many years to come. If our advantage can be summed up in 3 words, they would be control, control, control.
Everyone who touches a loan in a mortgage bank is employed by the company, and that means full oversight of the lending process which equates to faster turn times, an efficient streamlined process with less hassle, and effective problem solving on difficult loans.
Mortgage banks often choose to service their loans or have a 3rd party service the loans in the name of the mortgage bank. This is a benefit to you as it eliminates confusion, blind solicitations, and the call center mentality. Allied Mortgage Group retains servicing on most loans in our market allowing us to provide an exceptional customer experience long after the closing.
Banks/Credit Unions
Also known as savings and loans, these entities offer a full range of services in addition to mortgages: checking and savings accounts, automobile loans, credit cards, construction and land loans, etc. (a jack of all trades). They generally only offer their own products, which is limiting and at times a competitive disadvantage.
Loan officers at a bank or credit union pale in comparison to a seasoned mortgage banker, with exceptions of course. Large institutions that “wear many hats” rarely deliver premium customer service.
Banks/credit unions may choose to retain servicing or use a 3rd party servicer to service in their name.
Mortgage Brokers
These days, mortgage brokers are all the rage, although our research indicates that their best days are likely behind them.
A definition of a broker is “a person or firm who arranges transactions between a buyer and a seller.” In the mortgage bank and bank/credit union example, the “seller” is that institution. In the mortgage broker’s case, the seller is actually a 3rd party, meaning that individuals outside of their organization are responsible for processing, underwriting, closing, and servicing the loans. Their client’s fate is in outside hands.
Brokers, much like mortgage banks, have a full portfolio of investors and products that will suit most clients’ needs. There is a false impression that a mortgage broker will have a lower rate, as market conditions dictate the ups and downs.
Mortgage brokerages come and go as markets rise and fall. While some are well run and focus on fundamental business practices, many are fly by night operations looking to quickly capitalize. We have seen new brokers pop up over the last few years in our market due to price compression, increased competition, and a short-term opportunistic approach.
When overall market volume is low, brokerages will experience less issues. As soon as business picks up, their lack of process control can wreak havoc with slow turn times, customer and loan officer headaches, minimal ability to solve problems, and diminished customer experience. Some loans will never close due to these factors.
Another component that can be tricky for brokers is the lack of control over the appraisal component. While many mortgage banks, as well as refined banks/credit unions, have curated a list of qualified appraisers who they rely on, mortgage brokers generally do not have that same luxury. This can be a competitive disadvantage as the appraisal is a key piece of the process. A qualified appraiser can be the difference between a property being lendable or not.
Lastly, mortgage brokers can adjust their commission structure which incentivizes them to charge a higher interest rate in order to make more income. On the flip side, in a competitive situation, it allows them to do a loan for little or no profit. This either drives them out of business or forces them to minimize expenses that would otherwise go towards providing a high level of service to you the borrower.
Summary
Our branch has always been affiliated with a mortgage bank. A well-run mortgage bank is a superior platform. Please let us know if you have any questions on this or any other topic. We would love to discuss.