This Article Is About What Is The Difference Between Mortgage Brokers Versus Mortgage Bankers
What Is The Difference Between Mortgage Brokers Versus Mortgage Bankers is the question many borrowers often ask. Should borrowers go to a mortgage broker or a mortgage banker to qualify for a home mortgage. Is a loan officer from a mortgage banker more knowledgeable than a loan officer than a mortgage broker and/or vice versa? Where can I get a better mortgage rate and terms. From a mortgage banker or a mortgage broker? We will explain the benefits of both mortgage brokers and mortgage bankers. There are times where borrowers can have more benefit from using a mortgage broker versus a mortgage banker and we will explain why. Many people are under the assumption using a mortgage broker is like using a middleman so mortgage rates are higher than using a mortgage banker. This is not true and we will explain why. Actually, it is the opposite. Normally, using a mortgage broker may yield a better rate for the borrower than a mortgage banker. We will go over the compensation structure of both mortgage brokers and mortgage bankers. Both mortgage brokers and mortgage bankers originate home mortgages. However, the way the operations and funding works is different.
Difference Between Mortgage Brokers Versus Mortgage Bankers On Home Loan Programs
Many borrowers do not know whether or not the loan officer who they are working with is a mortgage broker or mortgage banker. Both mortgage brokers and mortgage bankers are licensed professionals. Mortgage bankers and brokers have the same credentials. They both need to get take a 20-hour NMLS course, pass the 125 questions NMLS exam, and get licensed in states they want to originate loans. You cannot originate home loans in states you are not licensed in. From the mortgage loan applicant’s point of view, there is not much of a difference between a mortgage broker versus a mortgage banker. To a typical borrower, a licensed loan officer is a licensed loan officer. Members of the general public will contact a loan officer. A loan officer can work at a mortgage broker, mortgage banker, FDIC bank, or credit union. Loan officers who work as mortgage brokers and mortgage bankers need to be licensed as NMLS loan originators and in the states, they originate loans. Loan officers who work at FDIC banks and credit unions do not need to be licensed. They need to be registered with the NMLS. FDIC bank and credit union loan officers are exempt from state licensing. All of these companies can qualify borrowers, issue pre-approval, and originate and close home mortgages. Borrowers should take time and understand the difference among the different types of lenders. What type of lender can the borrower best benefit from.
How Do Mortgage Brokers Operate
Mortgage Brokers have relationships with wholesale lenders. Mortgage brokers need to apply and become approved by wholesale lenders who want to do business. Wholesale lenders are not licensed and cannot originate loans to consumers. Wholesale lenders need to become affiliated with retail mortgage brokers. Mortgage brokers can have as many wholesale lending partners as they want. Mortgage brokers have mortgage processors but do not have mortgage underwriters. Licensed loan officers originate loans for mortgage brokers. Once a loan officer submits a file to the mortgage broker, a mortgage processor gets assigned to the file. The mortgage processor will process the file by gathering all the documents required. The processor makes sure all paperwork is legible, there are no missing pages, all docs and paperwork is labeled, and gets it ready for submission to the wholesale lender.
Mortgage Underwriter For Mortgage Brokers
Once the file has been submitted to the wholesale lender, a mortgage underwriter is assigned to the file from the wholesale lender. Once the underwriter has reviewed the file and finds the borrower meets all the guidelines, the mortgage underwriter will issue a conditional loan approval and send the file back to the mortgage processor. The mortgage processor and loan officer work together in gathering the conditions from the conditional loan approval. Once the conditions are gathered and complete, the file is resubmitted to the wholesale lender for a clear to close. The underwriter who issued the conditional loan approval is the mortgage underwriter who will review the conditions and issue the clear to close. Once the mortgage underwriter is satisfied that all the conditions from the conditional loan approval have been met, the underwriter will issue a clear to close. A clear to close means the lender is ready to prepare the docs and fund the loan. The file is then sent back to the processor of the mortgage broker. The processor and the closing department of the wholesale lender will make arrangements with the title company as of the closing time and date. The closing department of the wholesale lender will prepare closing docs and send them to the title company. At closing, once all docs are signed by all parties, the closing statement is sent to the wholesale lender. Once the wholesale lender reviews the closing docs and everything seems in order, the wholesale will wire the funds. When money exchanges hands, the mortgage has closed.
Operations Of A Typical Mortgage Banker
Loan officers at mortgage bankers are no different than loan officers at mortgage brokers. Their job is to qualify borrowers by taking a mortgage loan application, running a tri-merger credit report, collecting documents, and running the automated underwriting system for automated approval. However, mortgage bankers originate and close loans under their company name because they use their own funds. All mortgage bankers use their warehouse line of credit to fund the loans they close. After they fund the loan, mortgage bankers sell the loan they just funded on the secondary market. Normally, they sell the loan they just closed after funding to a larger mortgage banker. That larger mortgage banker is normally the wholesale lender the mortgage banker has relationships with. Mortgage bankers have wholesale lender relationships like mortgage brokers. However, the difference between mortgage bankers versus mortgage brokers is mortgage bankers have a correspondent relationship with wholesale lenders.
What Is Correspondent Lending
What is a correspondent lending relationship?
A correspondent lender is when a mortgage banker sells the loan they close and fund on the secondary mortgage market to a larger mortgage banker. The mortgage banker that sells the loan they funded to a larger mortgage banker is called the correspondent lender. Mortgage bankers can have their own underwriting staff if they do delegate underwriting. What delegated underwriting means is the mortgage banker’s in-house underwriter will underwrite the file and follow the guidelines of the wholesale lender they plan on selling the loan after it funds. Non-delegated underwriting means when the mortgage banker has a mortgage underwriter of the wholesale lender underwrite the loan. Mortgage bankers have their own underwriters, support and operations personnel, secondary and lock desk, closing department, in-house funding department. Mortgage brokers do not have their own underwriting team or operations team. Mortgage brokers work together with the operations and support team of the wholesale lender from application until closing.
How Do Mortgage Bankers Get Paid Versus Mortgage Brokers
Shopping for the best mortgage rates can save you tens of thousands of dollars over the term of a 30-year fixed-rate mortgage. Mortgage rates can vary from lender to lender. In this paragraph, we will explain why some lenders have higher rates than others. Both mortgage bankers and mortgage brokers are loan originators. The maximum a mortgage broker company can make on a transaction is 2.75% compensation. Out of the 2.75% yield spread premium paid by the wholesale lender, the mortgage broker-owner needs to pay the loan officer, the support and processing staff, rent, and other office overhead. 2.75% is not much money to cover a mortgage broker company with higher expenses such as licensing and bonding costs to get licensed in multiple states. Mortgage broker yield spread premium needs to be disclosed on the Closing Disclosure since mortgage brokers do not close the loan under their name. Mortgage bankers do not have to disclose how much they make on the Closing Disclosure. This is because mortgage bankers close the loan under their name and fund the loan. Mortgage bankers are not capped on how much they make. Mortgage bankers can make as much as they want. However, the more the back-end compensation is, the higher the mortgage rates. This is why mortgage brokers often have lower rates than mortgage bankers.
Mortgage Rates And Costs Of Mortgage Brokers Versus Mortgage Bankers
Mortgage rates vary from lender to lender. Every mortgage company (whether a mortgage banker or mortgage broker) gets raw pricing on rates. Raw pricing is the same for everyone. However, mortgage companies need to make a profit to pay their loan officers and expenses. This is how mortgage rates to consumers work. There is no free lunch in the mortgage industry. The reason why mortgage rates differ from lender to lender is dependent on how much the mortgage company charges on the back end.
Mortgage Rates Versus Lender Compensation
The more a mortgage company makes, the higher the rate. Mortgage bankers can make as much as they want because they close the loan under their names and fund their own loans. So if a mortgage banker wants to make 10% of the loan amount on each deal, they can and it is perfectly legal. However, the rates they charge consumers will be priced out of the market. Mortgage brokers are capped on how much compensation they can make. The maximum mortgage brokers can make is a 2.75% yield spread premium. In general, mortgage brokers have lower mortgage rates versus mortgage bankers. Most mortgage bankers’ compensation is substantially higher than 2.75%. Some mortgage brokers offer a discount rate division where the rates are substantially low. This is done by mortgage brokers lowering their comp plan to 1.25% or lower with the wholesale lender. Remember, the lower the comp plan the lower the rates to consumers. Mortgage bankers can do the same. Mortgage bankers can offer discount rates by lowering their back-end comp plan. This is why it is wise to shop for mortgage rates and try to get the best rates. This holds especially true for prime borrowers. Lenders, whether they are mortgage bankers or mortgage brokers, can negotiate rates and fees.