Frequently Asked Questions
"Mortgage Broker, Mortgage Banker, Banks: What's The Difference?"
Independent agencies that contract with numerous, small, large and midsized lenders. Mortgage Brokers do not fund loans in their own name, they are funded by the bank or lender selected. Mortgage Brokers are able to give consumers access to a large range of lenders with one point of contact and one loan application. By using a Mortgage Broker the consumer now puts the shopping for the best bank and rate in the hands of the an expert. Other benefits of using a Broker: Mortgage Brokers now are governed by law to not only show all commission but also cannot change the amount commission midstream as was allowable in the past. That means you know how much the Broker stands to make off your transaction and that the amount cannotbe changed. Before these regulatory changes Mortgage Brokering represented nearly 50% of all loan transactions in the US since the change that has dropped to about 15%.
Usually small entities that originate loans and fund in their own name as the lender. Their relationship with banks is not too different than that of the Mortgage Broker. The main difference is that they will use a credit line to fund the loan and then days later they will sell the loan to the bank/lender. The main benefit to the Mortgage Banker is that they do not have to show the consumer how much they will make on the loan transaction; this is because they will not get their profit until later once they sell the closed loan. This allows them to generally make more profits on their loan transactions because the consumer does not have the opportunity to question the amount of compensation. No surprise that prior to the new regulations Mortgage Bankers only made up about 10% of the retail loan production and now they make up roughly 35% of the total US loan closings.
Your true depository institutions and in addition to holding your money in checking/savings accounts they make loans to consumers. Banks loan officers have only one place to put loans, their own bank. Banks just like Mortgage Bankers do not have to show what the compensation/profits on the loans.
No Matter which entity originates your loan, 95% of all of the loans will be sold to one of the Agencies: Fannie Mae, Freddie Mac, HUD/FHA and the Veterans Administration. This means the base rates are the same, the only difference is how much profit was generated on your loan transaction. More profit means a higher rate to the consumer.