Myths vs Facts!
We’ve all heard it! Don’t go to a mortgage broker… go to a bank! Or Don’t go to a bank… go to a mortgage broker!
Let’s start off with the basics that a mortgage banker and a mortgage broker in Las Vegas have in common.
- When your loan closes, its all sold to the same GSE’s (Government Sponsored Enterprises) such as FHA, VA, or Conventional (Fannie Mae or Freddie Mac)
- Banks and mortgage brokers in Las Vegas both follow the same underwriting guidelines as they all sell so the same GSE’s.
- Turn times to close a loan are about the same.
- They both will end up asking for the same income documents from you at some point through the underwriting process.
Ahead of getting to the main points, let’s talk about federal law! This is a major ruling factor for mortgage brokers vs banks. After the economic-financial meltdown of 2008, the mortgage brokers ended up getting heavily regulated. While the battle of who caused the mortgage meltdown of 2008 is a classic dinner table argument between mortgage bankers and mortgage broker loan officers of who’s fault was it. The common denominator of what caused 2008 was due to loan fraud that was done on both sides. However, as we all know the banks have many more assets, spending capital, and some of the best lobbyists in the country. Because of that, when the legislation passed to transform the industry (for the better) the mortgage bankers gave the mortgage brokers the short end of the stick. (Or so they thought!)
What was passed was a law that mortgage brokers cannot make more than 3% of a loan amount in compensation including all fees. Furthermore, they made it a POINT to ensure that mortgage brokers had to disclose every dollar they made on the settlement statement.
Ex. $200,000 loan amount, max compensation for a mortgage broker is $6,000.
What the banks failed to realize is the majority of mortgage brokers all ready were charging less than 3% ahead of the legislation. They also didn’t do their homework and realized nearly all of the mortgage brokers did not charge a processing fee, underwriting fee, or any fees for that matter. But the banks did accomplish a few goals for themselves.
- They do not have to disclose how much revenue they make on a loan on any document. This means they can charge more than 3% legally, and they do.
- They can charge upfront fees such as admin fees, underwriting fees, processing fees, and more! Once again, they do.
The question that comes to mind is, why lobby aggressively for laws for all the mortgage brokers to be transparent to turn around and do the opposite? Well, the short answer is, it was a great way to get rid of competition and the mortgage broker industry was nearly annihilated after 2008 and made up less than 4% of the available loan options for consumers. Thus resulting in less compensation for the banks and options for the consumer to shop around for the best financial transaction. Now, let talk about what makes them even more different.
- Mortgage brokers are legally not able to charge a processing fee or admin fee, or any fee for that matter unless they have a 3rd party service providing it.
- Mortgage brokers can only charge an underwriting fee, and in nearly most cases you will see mortgage brokers NOT charge an underwriting fee.
- Mortgage brokers being capped at a max compensation of 3% gives them some of the lowest mortgage interest rates by default.
- Mortgage brokers have wholesale pricing, due to them taking on the workload of originating, structuring, qualifying a file where the banks don’t have to.
- Mortgage brokers have a higher skill set in most cases as they deal with an abundance of loan products constantly vs one set of products that a bank has.
- Mortgage brokers can shop around to 35+ banks with one single credit inquiry for the best mortgage interest rate.
- Mortgage brokers have more flexibility with lending guidelines as banks add rules in addition to what the GSE’s have in place for their risk mitigation.