June 26th, 2012 2:41 PM by Gregg Mower
Nothing, no news is good news in our industry of late. Rates are still at historic lows, and underwriting is still tight, the documentation required is still stringent. So we are all still learning this age of mortgage lending. But what I have seen is a niche that originators have been shying away from in the last several years, and that is brokering loans. Yes the big bad mortgage broker is back but regulated to hilt. I have been in the business for 28 years and seen a whole bunch of changes and the most changes have occurred in the last 3 years. Most of the smart originators migrated to a mortgage banker to call home over the last several years. This has been a safe harbor for those few years, in fact, that is what I did, thinking the sky was falling. Well I could not have been more wrong. In fact, today Steve (one of our Loan Officers), was talking to a customer and that customer was offered a rate at a cost where we were quoting a rebate to the customer at the same rate. That tells me that the Mortgage Bankers have increased their profit margin at the cost to their Loan Officers as a Mortgage Broker we are getting wholesale rates that still must remain competitive. It is good for business to make more money, however, if your team realizes there are better deals out there for them then we get back to a equalizing of the origination paying field. The industry is so regulated now that the mortgage broker has turned into an extension of the bank they are selling to, so the old ways of a broker being able to take advantage of a customer by raising the rates and fees has gone by the wayside with compensation reform and regulation. Loan Officers, whether they worked for a bank or a broker, in the past had the ability to price their own loans and make as much commission as they could on a customer. In today’s world a loan officer cannot be compensated on the loan when it is tied to the interest rate, the Loan Officer will make the same amount of money no matter what the rate is they give the customer, so it turns out to be in the Loan Officer’s best interests to give the customer the lowest rate possible so the client is happy.
Here is where it might get a little cloudy but I will do my best to articulate my thoughts. The interesting part of this shift is, the fact the Mortgage Banker need not disclose their end profit with the client or the Loan Officer. This can cause a Mortgage Banker to increase their interest rates and thus increase company profit. Now I am not saying profit is bad, do not get me wrong, it is just that a Mortgage Brokerage shop shows the total profit made on the loan to the Loan Officer and the Client, while the Mortgage Banker can make as much as they can get away with. I suspect this will be caught on to by Loan Officers in the future and smart ones will figure it out earlier than later and either go back to work for the new age Mortgage Brokerage shop or start their own Mortgage Brokerage shops. In today’s market I am seeing a retail Mortgage Banker priced about .25% to .5% in interest rate higher than those rates I am seeing as a Mortgage Broker. The laws were designed to protect the consumer, however, if the consumer wants the best deal possible find a Mortgage Broker that knows what they are doing from the inside out. As a consumer know what you are doing, don’t try and read the Good Faith Estimate look at the bottom line what does it cost you for the loan and what is your monthly payment that is truly all that is important in a world where all you can get is a fixed rate loan with no prepayment penalty. The Government makes it mandatory for us to disclose every little fee, however, the form we must show them to the consumer on is the Good Faith Estimate or GFE and this is so confusing 90% of the loan officers in the industry can not accurately explain each line on the form. I am sure this is by design somewhere, but the Mortgage Banker need not show all the fees in the same light as a Mortgage Broker (bigger lobby in Washington). But as a consumer be armed with the 2 most important questions to ask your lender; 1. What is my monthly payment? and 2. How much will it cost me to get that loan? If you can ascertain this from the lender that is what you use to compare. Don’t get caught up in the interest and APR game you will be more confused than ever. Again the Government came up with this crazy notion that an Annual Percentage Rate (APR) would be a good comparison for the consumer but by definition an annual percentage rate is confusing just to say let alone to know that APR is comprised of the interest rate and certain closing costs (defined by regulation Z of the Truth in lending Act) annualized over a year to a rate of payback of the loan. Yes, a consumer is supposed to know this, we all know 99.9% of Americans have no idea what that means, but is was created by the banking lobby as a point of comparison for consumers.
All of this stuff can be made real easy for a consumer just bay asking those two simple questions, and if in the end the payment or the costs differ go someplace else.