You may hear from your Realtor that using a direct lender is faster and cheaper than using a Mortgage Broker. That is just wrong, in fact, it is quite the opposite. With Innovations in Technology and the laws that came about from the Mortgage Crisis it has made the Mortgage Broker more viable than ever. The changes in the mortgage business over the last 10 years has been wide sweeping all designed to help the consumer, however, I feel it has just caused more confusion than ever. The one constant is that all Loan Officers now have to be licensed under the National Mortgage Licensing System (NMLS) which I find to be a good thing as that forced Loan Officers to be accountable for their actions. What also changed is how the fees became regulated and what institutions could charge what fees. These little but significant changes have created areas within the Lending Industry where the consumer may not realize there can be significant Interest rate and fee differences from one company to the next and it all is determined by what regulator the Loan Officer falls under in California. We will be exploring these differences and how you can benefit from having the knowledge.
If you are the market to buy a home and your Realtor has recommended a lender to you because they have worked with them in the past you might want to do your research as you could save yourself thousands of dollars. The big Mortgage Bankers or Direct lenders as your Realtor will call them have carved themselves out a niche to where they can charge more money to consumers than that of a Mortgage Broker and most Realtors don’t even know of the differences. That is where this article comes into play to open up some little known facts. First, your Agent may think a direct lender is a better deal for you as they underwrite their own loans. That sounds sexy, however, in today’s automated world every Loan Officer be it from a Direct lender or a Mortgage Broker has the same automated underwriting systems available to every underwriter. So when you apply for a loan with either a big Direct lender or a Small independent Mortgage Broker they all have the same access to an underwriter. So the myth of having your own underwriter as a selling point is just that a myth. Technology has improved so much that all of the paperwork necessary to process a loan can be uploaded and transmitted to an underwriter instantly and that underwriter can make a decision quickly. Most underwriters today use the Federal National Mortgage Association’s (FNMA or Fannie Mae) automated underwriting system to underwrite all transactions and that same system is available to all Loan Officers either from a Large Direct Lender or a small Mortgage Broker so the decision time is the same or better with a Mortgage Broker.
Let’s talk about the part of a Mortgage transaction that is the most important to all clients and that is where they can get the best interest rate with the lowest fees associated with that interest rate. This is where it get interesting and you will not get a straight answer if you talk with a Loan Officer that works for a Direct Lender as they probably do not understand it themselves as they are working for the direct lender simply because their commissions are higher per transaction. That is where, as a consumer, you should ask how or why their commissions are higher than that of a Mortgage Broker Loan Officer. That’s right, you are paying them so you should understand how it all works. You have to understand that all Loan Companies get their rates from the same sources it is how they stack their fees onto the interest rate that makes the difference. I could go deeply into how the secondary and Primary mortgage markets work but that would utterly bore you so I will simplify it for you. Big Direct Lenders have a larger overhead and more expenses than that of a smaller Mortgage Broker and they have to pay for all of that by adding fees to their interest rates. In addition, the regulator in California for direct lenders is the Department of Business Oversight (DBO) and they have different laws than the other Regulator; the Bureau of Real Estate (BRE). To be a Mortgage Broker in California you must hold both a BRE license and an NMLS license under the DBO all you need is an NMLS license. The next big difference is how the loan officer receives the Interest rates they can quote to the public. The DBO Direct Lender has to be able to make profit for the company to stay in business as does the Mortgage Broker but the Direct lender has to pay staff to originate the loan as well as the Loan Officer and that stacks up to be a whole lot more than that of a Mortgage Broker. A Mortgage Broker is limited to a maximum of 3% of the loan amount they can make on any one loan and that is a combination of all fee charged or not charged. A Direct lender does not have that limitation and can charge what they want to be profitable. A Mortgage Broker can go to the back door of a direct lender and get wholesale interest rates that only includes a small company profit for the direct lender as they are not paying for staff, branch managers, and Loan Officers. The Mortgage Broker will pass the lower fees and lower interest rates on the customer.
Having been on both sides of the fence I understand completely how this process works and will tell you that you will save thousands by working with a company like MAE Capital Real Estate and Loan. Every Loan we close is a testimony to this as the client’s rates and fees are significantly lower than that of a Direct Lender. As an example we closed a VA loan that came to us from a Veteran who works for the VA and he received a quote from one of the Veteran’s Administration’s “Approved Lenders” that is a Direct Lender and we beat them by .5 in interest Rate and $13,000 fees. We closed the loan at 3.875% and the veteran paid $0 down and $0 closing costs, saving him $13,000 in costs and has a lower mortgage payment. We have many stories like this and most of our clients don’t even realize the savings they are receiving as most clients don’t shop for a loan. So if your Agent is recommending a Loan Officer Check the rates and fees and then check with MAE Capital Real estate and Loan and you will be shocked at what you will save. If you are buying a house in the Greater Sacramento Area (El Dorado, Placer and Sacramento Counties) ask about our Bundling of Services where we represent you as the Realtor and the Loan. This has saved our clients even more money as we can bundle our commissions and get you a home warranty and other goodies that you would have otherwise had to pay for yourself. MAE Capital Real Estate and Loan is one of California’s best kept secrets when it comes to saving people money on their home financing. Call us today to find out more or have us compare your Direct Lender’s Loan Estimate with ours and see how we can save you thousands of dollars. We can Lend all up and down the State of California. Our phone number 916-672-6130 or go directly to our site at www.maecapital.com.
A mortgage Broker in in today’s world has been dramatically redefined from just a decade ago. A decade ago there were no real rules for a Mortgage Broker. There was no licensing, no Consumer Finance Protection Bureau (CFPB), no Loan Estimate forms, no Closing Disclosures, no TRID (Truth in lending integrated RESPA disclosure) and no underwriting regulation, and no real accountability. All these additions to the Mortgage Brokering industry over a decade is a lot to swallow. What that means to a consumer is simple, more red tape to wade through when applying for a home loan. Is this regulation good for the industry, the consumer? In many ways it is but in many ways it is not. And what about loan programs that a Mortgage Broker has to offer in today’s world? Well those are limited as well.
A Mortgage Broker a decade ago had no licensing requirements to go through to become a Mortgage Broker. One day you were a shoe salesman and the next a Mortgage Broker. That has all changed with licensing and the National Mortgage Licensing System (NMLS). You will notice that all Mortgage Brokers now will have to post their license number on all of their marketing material and advertisements. You will see MAE Capital’s at the bottom of this page and if you look up our staff you will see all Loan officers will have their NMLS number posted prominently so you can check them out, if you so desire. My opinion of licensing is a positive one as it makes the field I have chosen to be my career for the last 32 years more professional and accountable. This single one change has kept the riff raff out of the Mortgage Broker business for the last 7 years and I believe that to be positive.
An individual Loan Officer now has a choice where they wish to work or more specifically what regulator they would like to be under. What this means is that a Licensed Mortgage Originator may also possess a California Real Estate License and with both a NMLS and a Real Estate License they now have a choice of where they could to work. If a Loan Officer holds both licenses they can work for a Broker like MAE Capital Real Estate and Loan where we are regulated the California Bureau of Real Estate (BRE) allowing our firm to offer both Real Estate Services as well as Mortgage Brokering services. Having both licensing makes an individual Loan Officer more well-rounded in the information they have of the industry. I would argue that one could only be a Mortgage Broker if they were licensed under the BRE. The other licensing a Loan Officer could have would be one under the California Department of Business Oversight (DBO). Under this regulator, a Loan Officer can only originate loans even if they possess a BRE license they still could not act as a Real Estate Broker. An individual Loan Officer working for a company regulated by the DBO does not have the ability to “Broker” loans to other companies like a BRE regulated loan officer. Not having the ability to look at a multitude of companies to deliver loans to limits a Loan Officer to only offering products that their specific company can offer. A Loan Officer under the BRE with both licenses can look to hundreds of different sources of money across the nation to fulfill their customer’s needs. MAE Capital Real Estate and Loan is a true Mortgage Broker in that we offer products from different companies all across the nation and we can offer Real Estate services.
A Decade ago a client would go to a Mortgage Broker for a loan and they had no idea who they were talking with and if the person they were talking with could be trusted. A Mortgage Broker today has to account to the NMLS their activities every quarter. This means that a Mortgage Broker must know where their business is coming from and certain tracking items must be in every file. A decade ago a Mortgage Broker was not limited in the commissions they could make on a transaction. Today a BRE Mortgage Broker cannot make more than 3% total on an owner-occupied loan transaction and the commission cannot be tied to the interest rate at all. If you go to Loan officer that is licensed under the DBO you don’t know how much money that company is making off your transaction as they do not have to play by the same rules as those of us regulated by the BRE. The disclosures are different when you deal with a true Mortgage Broker like MAE Capital as we must show you, the consumer, more information than a DBO Loan Officer. We provide you with a Mortgage Loan Disclosure Statement form as well as the Loan Estimate, both show you what we make and what the costs of the transaction are to you so you know where every dollar is going.
As a Mortgage Broker for the last 7 years with these new regulations it has been tough to have to tell my clients that they will have to work harder to get a loan than ever before. This is where we all have hope in the industry that the new administration will fix those things that need fixing to help consumers be able to get financing easier. I am not talking about the recklessness that was the Mortgage Crisis but rather, I am talking about common sense things. Currently if you are self-employed it is nearly impossible for you to get a home loan the way things are today with having to verify every little bit of a person’s income before they will be granted a loan. It just makes sense to view individuals differently based on their jobs, their education, their credit and their ability to be able to deal with it all. I know some of you reading this think that we are all created equally and that is true on the rights we enjoy but it is not true in the way we chose to lead our lives. Those that are entrepreneurial should not be discriminated against because their tax returns don’t show enough income in the right areas to qualify for a home loan, these people should be looked at in different ways than someone who works a salary at a State job. As a Mortgage Broker we have found companies that can help these folks but these companies are under fire from the CFPB for not playing by the rules they created. So hopefully this new administration can bring back some make-sense underwriting criteria and loosen up the rules for people to be able to purchase Real Estate. As a Mortgage Broker in California we are here to find new and innovating ways to serve our customers.
As a Mortgage Broker licensed under the BRE a Mortgage Broker has more loan program options to offer clients. The loan products we have to offer as a Mortgage Broker ranges from conventional FNMA and FHLMC loans, FHA, VA, CalHFA, USDA, to Alternative loans like Bank statement only and W2 only programs for owner occupied loans. It becomes real interesting when we see start talking about the options we have for investors buying investment property. An investor can choose whether they need short term funds or long term funds, from a qualifying mortgage with low interest rates to no qualifying loans with higher interest rates. Private Money or Hard Money, as it is otherwise known as, is also an option we have for investors that want to take property under an LLC and may not have a track record a Bank will require or the credit score a bank will require. We can fund land, and commercial property as well as single and multifamily homes with private funds. A Loan Officer working for a company that is under the DBO as their regulator does not have this ability.
MAE Capital Real Estate and Loan is a Mortgage Broker and a Real Estate Brokerage firm allowing us to bundle our services and provide better deals for clients. With all the laws and regulations that we must comply with, we sincerely hope that you will use our Mortgage Brokerage services as well as our Real Estate services and for doing so we will work to lower your overall costs and we will purchase a home warranty for you, so when you move in to a house you know if there are any problems it will be covered by the warranty for the first year. We look forward to assisting you with your Mortgage and your Real Estate needs. We can lend all over the great state of California and our Real Estate area would be Sacramento and Placer counties. Call us today for information on Pre-Approval and free home searches or go directly to the site for more information at www.maecapital.com or call at 916-672-6130.
If you are about to embark into the Home Buying or the Refinancing process or have questions about the roles of a Direct Lender Verses a Mortgage Broker, I am sure this all is very confusing and you have many questions. Who will do my loan? What will it cost me? Who will be my Agent? What do I need to do to start this process? How can I make sure I get the best deal possible? You want to get all the information you can to make informed decisions, so you search the internet and talk with friends and family. Then you learn you have to be Pre-Approved for a home loan prior to looking for a home, and where do I go to get this done? All these questions are what the typical home buyer will ask when they begin their home buying journey. Most Potential Home Buyers will call a Real Estate Agent first, as they want to buy a home, and that is the logical first step in their mind. In Reality, a home buyer should get hooked up with a Mortgage Broker or Direct Lender in the area they wish to purchase a home, I would recommend a Mortgage Broker for reasons we will discuss later in this article. Not only will a Mortgage Broker or a Direct Lender be able to pre-approve you for a home loan and give you a price in which you can buy, that Lender or Mortgage Broker can also get you to a Real Estate Agent that is proven in the market you are looking to buy in.
Ok, I just confused you with Mortgage Broker and Direct Lender. What is the difference, you say; I think I need a Lender, didn’t you just say that I should start with being pre-approved? I did say that, so let me un-confuse you with the differences between a Direct Lender and a Mortgage Broker. First a disclaimer; I am writing this article in California and I am very familiar with the laws of the state as I have been working in the state for the last 30+ years and I hold both a License from the California Bureau of Real Estate (BRE) 00953953 and the National Mortgage Licensing System (NMLS) 2463961, which allows me to do both Real Estate Sales as well as a variety of different types of Loans, so the role of a Broker may vary in different states (Disclaimer Done). Back to Direct Lender and Mortgage Broker differences. A Direct Lender is traditionally the one who will have control over the funds they are will be offering to the public to lend. A Direct Lender will have its own set of rules on which they will lend money, and those rules will differ from lender to lender. A Mortgage Broker, on the other hand, can work with many different Direct Lenders and will have the ability to match the client’s needs to a Direct Lender’s specific guidelines in order to get the loan for the client the first time the client applies. When I say a Direct Lender controls their own funds, I mean that they will fund the loans they do from a line of credit they have established and may or may not service your loan (i.e. collect the monthly payments from you). A Direct Lender will ultimately put forth a set of rules to which they will lend by, and what they won’t lend by, which can make it extremely confusing to a potential home buyer to navigate on their own. A Mortgage Broker knows those little differences with the various different Direct Lenders and can deliver the loan to the right Direct Lender the first time without the frustration of going to multiple lenders before finding the right lender.
So those are some basic differences, now let’s take a look at the detailed differences, like costs, control, and professionalism. So Direct Lenders control how, and who they fund loans to based on a set of guidelines they produce. These guidelines are set forth by the management of the Direct Lender to accomplish their own goals. These guidelines include what minimum Credit Scores will be acceptable to lend on, what loan to value ratios are acceptable, what income documentation is needed, how to verify funds to close, how to view tax returns, how to view rental properties and a bunch of other criteria that goes into their guidelines. Each Direct Lender has a person or people to interpret these guidelines and they are called underwriters. The underwriter’s job is to evaluate the risk of lending money to you, and if they can then sell your loan to another lender to make money. That is a really basic explanation of what a Direct Lender does, and it can get a whole lot more detailed, but that is not for this article today.
Now we know that every Direct Lender is different and has a different set of “guidelines” of which to evaluate you with. You might ask the question; what “Direct Lender” is best for me? The answer is; you don’t know, so you will probably rely on your Real Estate Agent (if you have found an Agent yet) or a friend. However, your Agent or friend may not know the differences between every Direct Lender’s guidelines, and may just be referring you to Loan Officer they have done business with in the past, not knowing what kind of company they work for. So how do you know what to do? The answer is to work with a professional Mortgage Broker who does know the differences between direct Lenders like MAE Capital Mortgage Inc. But will that cost me more money you ask? In fact, it should end up costing you less as a Mortgage Broker is limited, by law, on the amount of money they can make by arranging your loan to a maximum of 3% whereas a Direct Lender does not have any limitations on the amount of money they can make from funding your loan.
There have been more laws instituted in the last 8 years in the Mortgage Industry than there ever has in the history of lending leading up to that point. All these rules and laws were designed to help you, the consumer, and as with anything new, there are some flaws and some unintended problems and benefits that may help or hinder you in the process of getting a new loan. The mortgage crisis that hit in 2006 through 2011 was a result of Wall Street not being prudent with their practices with Mortgage Backed Securities and the coercion that Government played with Wall Street. As with most problems in our society, the Government felt it could do a better job of fixing the problem than could the Free Markets, thus, they created the Consumer Finance Protection Bureau (CFPB) to protect consumers from the lending industry, inevitably making it harder for a consumer to obtain a loan for a home. So Direct Lenders buckled down their lending guidelines and niched themselves in the market place, and by doing so made it even more difficult for an average consumer to know which Direct Lender would be best to fund their loan based on their individual financial situation. An unintended consequence of this is that Mortgage Brokers became more valuable for a consumer to use, in that it costs a Mortgage Broker less to originate a loan than a Direct Lender and Mortgage Brokers will generally get the consumer to the right lender the first time. However, those same laws made it so a Loan Officer working for a Direct Lender has the ability to make more money per transaction than a Loan Officer working for a Mortgage Broker. Since Loan Officers working for a Direct Lender have fewer licenses they have to maintain and they can make more money per transaction that has left the industry with far more Direct Lender Loan Officers than Mortgage Broker Loan Officers so consumers that do not know the difference will generally end up with the higher priced Direct Lender Loan Officers to do their Home Loans. Ironically, Loan Officers making more money per transaction will end up costing you, the consumer, more in interest rates and fees than a Mortgage Broker like MAE Capital Mortgage Inc.
Why will it cost me more money to use a Direct Lender than Mortgage Broker you ask? In order to answer that we need to look at the difference in costs between using a Direct Lender and a Mortgage Broker. First, we need to look at the makeup of both a Direct Lender and a Mortgage Broker. A Direct Lender is generally larger than a Mortgage Broker employing far more people than a Mortgage Broker, thus having a much larger overhead and a need to make more money than a Mortgage Broker. A Mortgage Broker, on the other hand, generally has far less overhead to worry about than a Direct Lender so they do not need to charge as much money per transaction as a Direct Lender would. A Mortgage Broker is also limited to the amount of fees they can charge, whereas a Direct Lender is not limited in the amount of Rates and Fees they can charge. With the Government limiting commissions and fees that a Mortgage Broker can make to 3% of the loan amount, and the fact that a Mortgage Broker has to disclose the total amount of money they make per transaction and a Direct Lender does not, inevitably, it will end up costing the consumer far less in Interest rate (lower monthly payments) and fees to use the Mortgage Broker. So let’s break down how a Direct Lender and a Mortgage Broker gets paid. The way a Direct Lender is paid is multi-fold and can be confusing. As we discussed earlier a Direct Lender is a company that controls the funds they lend and make their own set of rules and guidelines. The Direct Lender’s income can get extremely confusing, to keep it simple, a Direct Lender will make money when the loan closes from origination fees and Points, and they will make money when they sell your loan. They sell their loans to other Direct Lenders or to FNMA FHLMC, GNMA or a Wall Street Conduit, to keep it simple. The Direct Lender’s upfront Points and Fees are designed to pay for their Loan Officers, and operations, and when they sell the loan that money goes directly to the company. Whereas a Mortgage Broker need only to pay for their operations, which are significantly smaller than a Direct Lender, and those fees are limited to a maximum of 3% and some of us even charge less than that. In general, a Mortgage Broker’s fees will be at least 1% better than a Direct Lender and in some cases more than that. For Example; MAE Capital is a Mortgage Broker and we only charge 2.5%, that compared to a Direct Lender’s Interest Rates and Fees could be a savings of .5% in Interest rate (i.e. which would provide a lower monthly payment) and as much as 3% savings in upfront costs. Also, as a Mortgage Broker, we must disclose our fees to consumers whereas a Direct Lender does not have to disclose all the fees and where they are going to a consumer. In addition, a Mortgage Broker has to allow you to choose whether you would like to pay for origination fees out of pocket or have the rebate from the lender pay for your fees, called Borrower Paid Fees and Lender Paid Fees. Oh, Mortgage Brokers must also show you 3 or more alternative lenders they could deliver your loan to, a direct lender does not have to do any of this.
A Mortgage Broker can also help you with Real Estate functions such as Real Estate Sales, Private Money, and other mortgage products. The direct lender cannot provide these additional services as a Mortgage Broker must hold both a NMLS license and a BRE license, where a Direct Lender only needs to hold an NMLS license. A Mortgage Broker can bundle their services and further reduce their fees saving you thousands of dollars when a Mortgage Broker handles both the Real Estate transaction and the Loan. So concluding, you can do all the research to find who, how, and where to start the home buying process with, but my hopes are that this article brings some insight to you on areas where you can save money. At MAE Capital Real Estate and Loan we can assist you with the Home Loan and bundle that with allowing us to represent you as your Real Estate Agent and save you thousand in costs and fees. Call us today, we would love the opportunity to show you how we do this. You can also bring us the fee estimates sheets from other Direct Lenders you are dealing with right now and let us show you how we can beat their rates and fees. Whether you are buying a home, or refinancing your home, we can save you thousands, let us show you how call today and ask for one of our dual licensed Loan Officers (916) 672-6130. Or Click here and submit your information and or questions and we will contact you directly. We looking forward to talking with you!