As a Manhattan real estate professional for the past 15 years, one of the most common questions I’m asked by my clients is "should I go directly to my bank or use a mortgage broker?" I personally have always used a mortgage broker believing that more often than not, they will be able to secure the best mortgage product for my personal needs. My most recent loans and refinances have been handled by Daniel Shlufman, the President of FCMC Mortgage Corp. Since I trust him implicitly with my personal business as well as the mortgage needs of most of my clients, who better to answer this question. Here is his response:
I. Choice of Lenders, Products and Rates
Mortgage brokers work with many different lenders. Some of these are large national banks such as Citimortgage, JP Morgan Chase and Bank of America. Others are smaller regional savings banks such as Astoria Federal Savings and Ridgewood Savings Bank. As a result, we are able to effectively shop the market for you since we have several lenders that specialize in every type of loan product.
In addition, mortgage brokers work with non-bank lenders, who lend to borrowers who either have special situations or credit issues that need to be addressed. Many of these are sub-prime lenders who either do not work with borrowers or who prefer to work through mortgage brokers due to the complexity of these transactions.
The variety of lenders available to us allows mortgage brokers to tailor a loan and product to each persons individual situation. We are not bound by the requirements and programs of any one lender so we can offer the best program to a borrower regardless of which lender is used.
When going directly to a bank, the borrower can only avail themselves of the programs that are offered by that particular bank. For example, a bank may have a great rate on a 30 year fixed rate loan, but an above market rate on an interest-only adjustable rate mortgage (or “ARM”). Brokers, on the other hand, will use the best bank rate they have for a 30 year fixed and the best bank rate they have on an interest-only ARM, which will usually be from two different banks.
II. Priority Pricing and Payment of Brokerage Fees
In this competitive interest rate environment, lenders often offer pricing incentives to mortgage brokers to bring loans to them. As a result, mortgage brokers are often able to offer better interest rate to borrowers than they would get by going directly to the same lender. Also, mortgage brokers work with some lenders who you might not be aware of. This can also save you money when, as often is the case, these smaller or regional lenders offer more favorable terms or rates.
Generally, the mortgage broker fee is paid to the mortgage broker by the lender. This occurs in all cases when a borrower is taking a 0 point loan. In such event, so long as the rate is as good or better as one the borrower can find on their own, they get the mortgage brokerage services detailed in this article at no cost to themselves. However, they get all of the mortgage brokers expertise, processing services, bank access, etc on the banks dime!
III. Allegiance to the Borrower
Unlike the loan officers, appraisers and processors who work for the bank either as employees or independent contractors, mortgage brokers work for the borrowers. The borrower is the mortgage brokers client, and the mortgage brokers job, as a professional, is to understand and satisfy the needs of that client.
The mortgage broker discusses with the client the best type of loan for the client based upon the clients specific income, asset, and credit situation. We also analyze the loan requirements with respect to the amount and proposed use (e.g. purchase, refinance, cash-out). Once the mortgage broker determines what type of loan will best suit the clients needs, we are then able to figure out which lender has the best rates and terms (which often include maximum cash-out on refinances or minimum documentation when required).
In addition to acting as an adviser to the client, as issues arise throughout the process, the mortgage broker becomes the clients advocate with the lender. When going directly to a lender, a borrower is only one of thousands of borrowers in a lenders pipeline. However, a mortgage broker has an on-going relationship with each of their lenders which gives them leverage in resolving issues. Mortgage brokers have priority access to the bank decision makers which allows them to obtain answers quicker and more efficiently
IV. Service to the Borrower
Most mortgage brokers are local to their geographic area and, therefore, have specialized knowledge of that area. They are aware of such things as mortgage tax in New York, Peconic Bay Tax in the East End of Long Island and unique issues with respect to cooperative apartments in Manhattan with which out-of-town banks and internet companies are not familiar.
The loans are processed by the mortgage broker who has control over the process. Telephone calls made to a mortgage brokers office are handled efficiently by the loan officer, processor or owner of the company. Unlike calling a bank, there is no (800) number to dial, no prompts to work your way through and no extended hold times.
Since mortgage brokers handle the processing of the loan, they are able to process it much faster than lenders can since it does not go into a large black hole in some back office somewhere. The typical time for processing is 2-5 days with approvals received 5-10 days later. In the competitive real estate arena and in our fast paced world, time is money. Mortgage brokers understand this and react accordingly. We structure every deal with the clients needs in mind. This can include a mortgage contingency clause in the contract or a closing date to accommodate date specific needs for the funds.
Mortgage brokers offer a valuable personalized service to make sure that their clients receive the best loan at the best rate for them. They shop the market for interest rates which save their clients time and money. They work for the clients from pre-application through closing as advisers and advocates. And, best of all, nearly all of the time the banks pay the fee, yet you as a client receive the valuable service for free.
Again, if I didn’t know Dan was of the highest integrity, I wouldn’t have asked him to answer this question. Now I definitely have high-end clients who have personal banking relationships that could never be matched by anyone. Having said that, Dan has always told these clients when they already have a great deal that no other lender can beat.
With all of the sub-prime market meltdown, mortgage brokers are more frequently being unjustly vilified. People just love to point fingers and dish out the hate. Of course, there are bad seeds out there, but just as a savvy real estate agent brings value to a transaction so does a knowledgeable and honest mortgage broker.