Money is a commodity much like wheat, silver, oil and gold. One pound of wheat from one place is the same as one pound of wheat from another place. To get more business, big banks like Wells Fargo would have you believe their money is better. This is done with fancy banks with marble floors and expensive advertisement campaigns with celebrities.
The truth is the more they attempt to make their product (money) more attractive, the more they are really devaluing their offer. The advertisements and the brick and mortar make their product, money, more expensive.
To cut their teeth, the average broker has either worked for a bank or a direct lender. Being a good loan officer is difficult and the learning curve is steep and long. It is best to start with a direct lender/bank because there is a ton of support. The newer loan officer might have a manager above them to help with scenarios, guidelines, and problems. This manager will have an area/regional manager above them to make sure the manager is keeping his team productive, etc.
The tradeoff is all that support needs to get paid. You must realize that in mortgage lending there are no other ways to pay employees other than the margin you set in the rate. In the companies I have managed it is very common to pay managers 25 – 40 bps per loan. Now to repeat what I said earlier, the manager is there to help people who may not know how to do their job yet. On many loans the loan officer might not need help but the manager will get paid either way. 30bps on a $500,000 loan is $1,500. One good thing (if you consider it good) is the newer loan officers will make less. This offsets the cost of the manager.
Unfortunately, if your loan officer is making less because they don’t have skillset yet, it can put the buyer in a bad place and the loan in jeopardy.
Most everyone knows that mortgage brokers can take their loan request to dozens of wholesale lenders and shop for the best rate. Although this is great, here are a couple other things I love about being a broker.
1. When my client gets into contract and there is a 15 day close (instead of 30) I can sort the cheapest 10 lenders first, then sort the top couple that I know will close in under 15 days. Last sort is who I like to work with because if I need a favor or rush…they got my back. I could not do this working for a bank.
2. The myth is brokers don’t have a relationship with lenders because we use different lenders. They might kill our deal because we don’t work for “the same company”. Nothing could be further from the truth. Brokering is supply and demand at its greatest. If a wholesale lender messes up on my file, I will fire them. They work for my business where loan officers who are captured by their bank cannot threaten to go somewhere else when the fire’s hot.
Brokers, generally, do not have managers and area managers, etc. They do more of the work, they know more about guidelines, and they control more of the money they make.
The truth is a direct lender could do a loan just as cheap as the cheapest broker and a loan officer at a bank could be the smartest most capable loan officer in the world but the structure does not support that.
So, is a mortgage broker cheaper than a bank?
You have the best odds of getting the best rate with a broker.
