Mortgage Broker or Bank?

In the state of Florida, it seems there is a different bank on every corner and twice as many mortgage brokers. Consumers are inundated with advertising for residential and commercial mortgages from both, and the messages can be a little confusing.

Banks are big and powerful or smaller and focused on customer service. Mortgage brokers say they can get a loan regardless of one's credit history. Both statements, of course, generalize the role of these institutions. But if you asked the average Florida consumer, that is probably how he or she would differentiate between the two.

So, what is the reality? Both banks and mortgage brokers can provide residential and commercial loan packages and deliver good customer service. So how can you decide which service to use? After all, if they both offer the same product, why not go right to the bank you are already doing business with or intend to do business with?

The answer to these questions is rather involved and full of details the average consumer does not care about -- you just want a simple answer of were to get the best deal. And since most consumers already have a clear idea of what a bank can offer, we will focus on what a mortgage broker is, and what a good broker can offer to the consumer.

What is a mortgage broker?

Mortgage brokers are independent real estate financing professionals who specialize in the origination of residential and/or commercial mortgages. They typically pass on the actual funding and servicing of loans to capital sources that act as loan "wholesalers." Most major banks, for example, have wholesale loan departments.

An average mortgage broker will work with 40-60 wholesale lenders at any one time. A good mortgage broker who is well educated on loan programs and perimeters can offer the consumer the most efficient and cost effective method of obtaining a loan.

How does a mortgage broker get paid?

A mortgage broker can get paid in one of three ways:

1. In whole by the end investor or lender

2. In whole by the consumer

3. In part by the consumer or the lender.

The most common way that a competitive mortgage broker gets paid is in whole by the lender. However, it will vary based on the loan program a consumer selects.

If the bank pays the mortgage broker, doesn't it end up costing the consumer more?

No. The best competitive mortgage brokers arm the consumer with a free market economy weapon: open and vigorous competition. Not only can brokers find consumers a better deal, in fact, it is often more cost effective for the lender to pay the mortgage broker a fee than it is for him or her to maintain a retail loan department.

Any consumer who takes the time to shop the market place will ultimately find the best deal. Remember, however, that although price is important, a mortgage broker will also shop based on the following:

1. Compliance with consumer requirements

2. Reputation for service

3. Underwriting criteria

4. Ability to fund a loan on time

Is a mortgage broker always going to get the best deal for the consumer?

Since mortgage brokers offer the products of many wholesale lenders, they often have the best selection of loan programs. The question is, can anyone really presume to know what the best deal is? And the answer to that is no. There are thousands of lenders and thousands of products available, and it is therefore impossible for any one broker or bank to guarantee the lowest possible rate. A consumer should compare and select based on the following:

1. Loan programs that meet customer requirements

2. Rates

3. Points

4. Term.

The recent results of a national study published by the Florida Association of Mortgage Brokers (FAMB) showed that mortgage brokers originate 70 percent of all mortgages nationwide. This clearly indicates that consumers are educated and doing their homework. The trend in mortgage origination has also helped those consumers who don't use a broker by forcing retail lenders to compete with other loan sources, driving costs down nationwide.

Buying or refinancing your home is clearly a major financial decision, as is the acquisition or refinance of commercial property. And with any major decision, a consumer should be well informed. The Internet is an excellent and efficient tool for sourceing loans. It explains what going rates are and what programs are available. I would highly recommend searching the net. A good web site that will give the consumer access to multiple lenders nationwide is www.mortgagequote.com.

Whether you chose to utilize the services of a bank or a mortgage broker, do not assume you have the best deal with out doing your homework. A better-informed consumer is a happier consumer.

Lorelei Hummel is vice president of Sunshine Mortgage of Sunshine Mortgage of South Florida, a licensed correspondent lender serving all of Florida with offices in Fort Myers and Naples.