I’ve had the opportunity over my 26 years in the mortgage business to work as a Mortgage Broker (Mortgage Brokers use multiple banks and their products and fund in the bank’s name), a Correspondent Lender (Correspondent Lenders fund loans from a warehouse line using their own name and then sell the loans), and be a Bank Lender (Bank Lenders fund loans with their own money and use that bank’s products). There are positives and negatives to all three types of lenders. But when picking which one to deal with I feel it comes down to experience, competence, and support. If you do not have these three things then all three types can be a disaster. Conversely, if the loan officer has experience, competence, and support then any one of the models can work. Below are a few of the differences between the three types of lenders.
Who has to have a license?
Loan Officers/Mortgage Originators who work for banks are not required to be licensed per the SAFE Act. They are only required to be registered (which currently has lower requirements than a licensed loan officer). Mortgage Brokers and non-bank Correspondent’s have to be licensed. In my opinion, the Safe Act dropped the ball here. Any originator that takes a loan application should be licensed. That’s like dealing with a realtor who is not licensed. I am a mortgage broker so I have to be licensed but if I was not required to have a license, I would still get one.
Bank loan officers are limited to just the products the bank carries while Correspondents and Brokers have the potential to carry numerous products from different banks. In general, I would say the Correspondents and Brokers have the advantage here. Some of it depends on the size of the bank and how many products that bank has, but normally Correspondents and Brokers have more to choose from.
One of the most important things to have is in-house processing. I’ve had off-sight processing before and there’s only one word for that; nightmare. This goes to support. If you pick a mortgage originator that processes off-sight then you are taking a big gamble. There is just too much hands-on work that the originator needs to do with his or her file. Also, make sure the processor has experience. A good processor can save a transaction. Conversely, a bad processor can ruin a transaction.
YSP vs SRP
What is that? YSP is yield spread premium (now called Broker Compensation). That is what the Lender pays the Mortgage Broker at closing. It has to be disclosed on the HUD and good faith estimate although the borrower is not paying this, the lender is. SRP is service release premium. It is what the lender gets when they sell the loan on the secondary market. The biggest difference in the two is that Mortgage Brokers have to disclose to the customers what they make whereas Bank Lenders and Correspondents do not. Personally, I like disclosing what I make to the client. I feel like I’m being more up front and trustworthy. But, each to his or her own here.
In closing, all three have their advantages and disadvantages. As I stated in the beginning; experience, competence, and support are the keys. The last factor, use someone local. Locals are invested in their market and depend on their reputation to stay in business. Local lenders also know the real estate agents, appraisers, and attorneys. When problems arise it’s easier to solve issues when your lender is local.