I like blog posts that are short, sweet, and straight to the point (for the most part). So, here we go. I’ve worked for both big direct lenders and now a broker here at Compass Mortgage Planners. Here’s why I think borrowers are far better off working with a broker, as opposed to a large publicly traded bank or direct lender.
1. Dozens of Lenders
We brokers have access to tons of different lenders who are all competing for our business (and therefore, indirectly, competing for your business). All we have to do is go through the steps of getting signed up with any particular lender we want (assuming it’s possible) and BAM!, we are off and running to the races. Imagine opening your fridge or cupboard and being able to pick out anything you want to eat. This is very similar to the broker model. Instead of only having one choice (i.e. – one lender who carries only a few loan products) we get to look at all of them and see who has the better option for our clients. Insurance brokers are similar. When you go to one insurance company you only get their products and rates, but if you hire an insurance broker (paid by the insurance companies) he or she will search every insurance company to find the very best deal for you. It’s a no-brainer. Brokers are better, period. We also have the knowledge to know what we are looking for, and this is important because loan products are often complicated and have many “fine print” conditions that can be missed if you’re not careful.
2. Way More Products
As brokers, not only can we shop lots of different lenders to find the best mortgage loan products but also, we almost always have far more products that we can offer. We are not limited to what one lender offers. If we want to, we can find lenders who offer things that are not as common, less known, or loan products that are just not offered by traditional lenders. Some examples of these are:
- DSCR / Investor Loans
- No Ratio loans
- HELOCs
- HE (Home Equity) Loans
- Bank statement loans
- Reverse Mortgages
- Jumbo ARMs
3. We Control Price
As brokers, our compensation comes from either the lender or you (the borrower). This is what’s called “Lender Paid” vs “Borrower Paid” compensation. The reason this matters is because, as a broker, I am able to control how much we charge in order to do the loan (in most cases). In contrast, loan officers working for large bank type institutions cannot do this. They do not have control over their commission, and are therefore often less competitive. In addition, direct lenders have much bigger overhead than we do (such as big marketing costs). Therefore, they typically have to charge more in order to cover those costs. This means their profit margins can be upwards of 4% to even 10%! At Compass, we operate at a 2% margin. That’s it (and even in some cases we will go lower if we have to).
4. With You Every Step
Over the last decade many big bank lenders have developed a method of loan applications that I call “The Baton Method”. This is where they hire paid application takers. Essentially, they take your application and then pass you off to another person in their company, who then passes you off to another person, and so on down the line. This often means you get less customized service, a transactional “robotic” experience, and no solid consistent loan officer who is advocating on your behalf and fighting for your loan to go through.
5. No Junk Lender Fees
What are “junk” lender fees? Put simply, these are fees that I call “junk” because large lending companies build them into your loan cost but, as a broker, I either don’t have to charge them or I can find cheaper alternatives. These fees can manifest into your loan in a variety of different ways (such as a higher rate, a higher payment, extra or higher processing fees, or origination charges, or other fees that will show up on a federal loan estimate). Lenders are required by law to send you a federal loan estimate when you apply for a loan with them. So make sure to always get one from your lender and review it. Then, compare it with your broker (I hope that’s me!). Check out page 2 and compare the fees. For example, if BOX A is showing an points or origination charges you may be getting overcharged.
6. More Availability
We brokers don’t have bankers hours. I don’t just clock out at 5PM and not answer my phone until the next day. I’m nearly always available (night, weekends, holiday, etc). Most brokers are going to be far more available than any loan officer working for a big lender. I work for you, not the banks or the lenders I work with. This provides me a strong incentive to make sure that I am available when you need me. In my business, I am typically available from 7AM to 8PM every day, but if it just so happens that a client needs me to be up at 5AM my time (or 10PM my time) I can and will do it.
7. No Loan Steering
I can remember, quite vividly, working for a large direct lender when rates were changing and business was getting slower. Company meetings would include big talks about how we loan officers should discourage borrowers from doing HELOCs (because we didn’t have them!) and instead convincing potential clients to give up their super lower rate in trade for a higher one, in order to pay off high interest credit card debt. In fact, I can remember a few managers encouraging young loan officers to tell people “You don’t qualify for a HELOC” when in fact they couldn’t know that!
As a broker, I have no desire or need to attempt to “steer” my clients into a loan that I know is not good for their situation (or to steer them away from a loan they are asking for). I have both an ethical and a fiduciary responsibility to find my clients the very best loan for their need (regardless of what kind of loan it is). I most cases my compensation comes from the lender, and since I have so many loan options at my disposal there is no need to try to talk anyone into (or out of) anything that is not in their best interest.
