These are the three main differences between the two: Control, Servicing, and Guidelines.
A broker is essentially a middle man that brokers out loans to various companies to try and find the best rate. The banker is the entity that funds the loan; a broker uses different entities to fund the loan, resulting in a lack of control over the whole process. A bank controls the entire file from the application to processing, to underwriting, and to closing.
A broker is at the mercy of whoever funds the loan. They put the package together, send it to the bank, and the bank does the rest. This could result in jeopardizing timing on the closing and putting the whole purchase at risk. It’s a bit like playing a game of telephone, where the borrower has to go to the broker, who then calls the bank, and tries to get an answer from whatever department is currently working the loan – sometimes resulting in huge delays.
Basically, loan servicing refers to the administrative aspects of a loan after the funds are issued to the borrower. A loan servicer collects the payments, manages escrow, and pays the insurance and taxes on the mortgage. Some banks service their loans, and some don’t, but a broker does not service loans. Having everything in one place is a nice benefit of working with a mortgage bank that services its loans.
Some banks, mortgage banks included, do sell off loans after the funds are dispersed, and the borrower is forced to re-enter their information with the new bank or servicing company every time this happens. We really wanted to ensure continuity for our clients, so our branch does not sell off our loans to keep things streamlined.
Even after we close, you can call us and we can put you in touch with the right person to resolve your servicing issue. We want to be your lender for life, not just for the home loan you’re applying for today.
If you work directly with a bank, they work directly with Fannie Mae, Freddie Mac, and FHA and can underwrite to those guidelines. A broker, however, has to use underwriting overlay conditions, and they are generally more strict than Fannie and Freddie. They need to use the lowest common denominator so they can later sell the loan. Fannie and Freddie are less strict for qualifying a borrower.
We have in-house underwriters who are a terrific resource for us. That gives us the ability to discuss issues that arise and be solution-oriented, and that is not something you will likely get with a broker or even a large bank. Which brings me to one more difference to discuss: banks vs. mortgage banks.
Banks vs. Mortgage Banks
Mortgage banks are just doing one thing: home loans. We focus on that one thing and do it well. If you go to a general bank, they provide auto loans, and savings and checking, and credit cards, etc. My general experience in life is that it’s better to do one thing well than ten things not so well.
This is why we are here and why we designed our business the way we did. It is hard enough to get loans in this industry let alone giving control to another entity who might mishandle the process. We want our borrowers to have the least amount of hurdles to get to the closing and have a place to go when issues arise even after that loan is closed. You can learn more about our process and what makes us unique here.