Real estate financing in the twenty-first century can often seem daunting, disconcerting, and intricate to the average lay person. With the help of the pros or trained specialists in the field, however, home loan transactions may be effectuated with efficiency, cost-effectiveness, speed, and simplicity. Mortgage lenders, mortgage brokers, and mortgage bankers often work in concert to generate a home mortgage for consumers. What follows is an outline and discussion of the functions and roles assumed by these indispensable home loan facilitators:
1. Mortgage brokers:
These mortgage companies or individuals are independent contractors that serve as intermediaries between lenders and borrowers, originating mortgage loans for the latter and earning a placement fee in the process. Mortgage brokers generally provide origination services and focus on the bulk sale of home loans on the secondary market, short-term funding of large projects, and residential mortgage loans. Typically, a mortgage broker originates loans and then places them with numerous other lenders with whom they normally conduct business. The role of mortgage brokers is advisory in nature and involves assisting clients in locating funds, describing complex home loan products and options, and negotiating the financing. These professionals perform a multitude of tasks including the following:
- Assisting prospective borrowers in the application process and in loan processing;
- Obtaining the customer’s credit report, conducting a credit check, and assessing the customer’s financial circumstances (i.e. income) in order to ascertain the amount of funds that he or she can borrow;
- Counseling borrowers on the loan process and on an extensive selection of mortgage products available from a wide array of wholesalers (i.e. credit unions, trust companies, and banks) and that offer an optimal rate as well as advantageous terms and conditions and that match their home purchasing needs;
- Gathering and submitting the required documentation- confirmation of income, loan application, credit rating, financial data, and proof of equity- to the lender;
- Communicating with third parties such as surveyors, estate agents, title companies, and appraisers; and
- Negotiating on behalf of borrowers (i.e. interest rate).
Since mortgage brokers do not work for a particular lending institution but maintain a business relationship with dozens of lenders, they are equipped to recommend the most suitable mortgage program to their customers. Mortgage brokers are able to offer low rates due to their minimal setup and overhead costs. When recommending a particular lender, they generally focus on the following attributes: 1) its satisfaction of borrowers’ needs, 2) its capacity to finance the loan in a timely manner, 3) its underwriting criteria, and 4) its reputation for quality service.
Mortgage brokers also provide a number of services to wholesale lending institutions, such as : 1) preparation of home loan applications, 2) pre-qualification of prospective borrowers, 3) marketing of loan products, as well as 4) assembly and delivery of the final loan package. Borrowers pay mortgage brokers a commission or fee for the services they provide and only if and until the loan closes.
2. Mortgage lenders:
These are the institutions that actually provide the mortgage funds to borrowers seeking to purchase real estate. Mortgage lenders include private companies, life insurance companies, trust companies, credit unions and banks. Unlike brokers, which may only be authorized to lend funds in a handful of states, mortgage lenders are usually licensed to loan money in every state. They serve the public in numerous capacities including the following:
- Underwriting and funding mortgages;
- Ensuring the mortgage’s satisfaction of underwriting guidelines;
- Issuing the final approval for loan requests;
- Presenting the funds to the borrower at the closing in exchange for a lien on the real estate in question and a note confirming the client’s debt and duty to repay;
- Providing loan applicants with information such as pre-eligibility underwriting criteria such as housing and debt ratios;
- Explaining the offer in detail, including such items as the fees (appraisal, mortgage, underwriting fees) and interest rate;
- Requesting financial information such as liabilities, expenses, income, bankruptcy filings (if any), and employment record from loan applicants;
- Applying for the customer’s credit score in order to assess the latter’s debt repayment ability;
- Deciding whether to grant, refuse, or adjust the borrower’s application for a re-evaluation;
- Ascertaining and servicing the loan amount for which the applicant qualifies;
- Furnishing the borrower with a good faith estimate, and
- Closing and servicing the mortgage.
Mortgage lenders that originate the loan themselves are known as “retail lenders”, whereas those who delegate certain duties to mortgage brokers are dubbed “wholesale lenders”. Costs and fees are typically charged by lenders for purposes of loan processing.
3. Mortgage bankers:
Also referred to as “direct mortgage lenders”, these entities finance home loans in their own name, sell them to investors, set up monthly payments, and take charge of the escrow. Mortgage bankers, which may be corporations, firms or individuals, are engaged in the origination, resale, and servicing of loans backed by collateral on real estate. A large mortgage banker typically services home loans, whereas those smaller in size generally sell their servicing rights. Mortgage bankers perform a wide range of services, including the following:
- Deciding whether to grant or deny the credit application;
- Presenting to prospective borrowers a list of its mortgage programs;
- Selling the home loan to investors such as Fannie Mae and insurance providers;
- Financing mortgages by putting short-term notes up for sale or borrowing from lending institutions; and
- Closing home loans directly and with their own funds or those of a warehouse lender.
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Thanks for such an insightful post on these three players in the industry. It makes it much easier for me to understand who is who and how they relate. Now I know who can make the decisions in different aspects of my mortgage loan! Much appreciated!