April 18th, 2018 10:33 AM by Gregg Mower
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.