For many, a mortgage banker and mortgage broker are the same. They’re really not. They are the same because they’re a source for home financing but how they get a home loan ultimately to the closing table is different. A mortgage banker and broker might sound the same to the everyday consumer but there are some stark differences. Differences that can really affect your mortgage outcome.
First though, let’s understand what a mortgage banker is and then we’ll talk about brokers. As you know, I’m a mortgage broker and I work with mortgage bankers and wholesale lenders, so I understand the differences completely. A mortgage banker is an entity that originates, processes, approves and funds a home loan. That means a consumer will apply for a mortgage and the mortgage is then handed over to the processing department. The processor gathers all the documents needed in order to close the loan as well as ordering required third party services.
Once the loan has been completely documented, it heads on over to the underwriting department. The underwriting department is the area where the loan file is scrutinized making sure the file meets the requirements for the selected loan program. Finally, once the loan has been approved, loan papers are delivered to the settlement agent. At the settlement, papers are signed and returned to the lender who then wires in the necessary amount to fully fund the mortgage loan.
A mortgage broker counsels the applicant to identify the best financing options for the client. These options can vary based upon the term of the loan, the amount of down payment available and other important factors. Once the loan choice has been made, the mortgage broker will then contact various wholesale lenders who offer the selected loan. Mortgage bankers typically have wholesale divisions. Wholesale divisions cater to mortgage brokers and solicit loans from them. Wholesale lenders even hire customer service representatives to make sales calls on mortgage brokers promoting their various programs and services.
The mortgage broker then compares the various loan offerings from these lenders and once found, the loan package is delivered to the wholesale lender. The mortgage broker also collects needed documentation in order to complete a loan file. Once the loan file is submitted, the mortgage broker acts as a liaison and advocate for the applicant.
The process between the two is relatively similar as the loan is ultimately funded. The difference however is options.
A mortgage banker is required to only offer the loan programs in its portfolio. A mortgage banker is forced to use the interest rates each day posted by the company rate-setting department. A mortgage banker must also evaluate a loan using its own underwriting guidelines, and not those of others. This means one mortgage banker might decline a loan application that could very well have been approved at another. Unfortunately, consumers can come away thinking they can’t get a home loan because of the initial decline, where all they had to do was find the right lender. Finding the right lender however can be a challenge because consumers don’t have access to a lender’s approval guidelines for each and every loan program. That’s where the mortgage broker has the edge.
For example, each day I get loan program and rate information from every lender I work with. I also know which lenders will approve a certain type of loan and which would not. Not only do I have the ability to identify different lenders but also compare those same lenders who offer the more competitive rates and terms. That’s the main difference between mortgage bankers and mortgage brokers. Options, flexibility and a streamlined loan process.