a first time homebuyer meets her real estate agent at a restaurant for lunch to discus which type of mortgage lender is better for her, a small lender or a big lender. In July, we aligned with a new, much larger mortgage bank that has the resources to hire a lot more operations staff (underwriters, doc drawers, funders) – and our turn-times and service levels are improving significantly as a result.

So much so that we will be re-introducing our 14-Day Close within the next 30 days or so.

BUT – the drawback to the much larger mortgage bank is more bureaucracy. Because of its size, it necessarily has to apply far more “one-size-fits-all” rules that are not always the most efficient way to do things.

These rules affect how we lock loans, how we order appraisals, and even how we close loans – all adding a bit more time and effort to our overall process.

So – our new mortgage bank is much larger and that comes with both good and bad, but fortunately there is far more good.

I thought of this last week when an agent asked me what is better for clients – a big lender or a small lender.

As long as a lender has access to all major loan products, size is usually irrelevant.

Here are some criteria to consider:

  1. Access to Jumbo/Best Loan Products. Many major jumbo investors will not buy loans from mortgage banks unless they are both large and well-capitalized with high net worths. As a result, some smaller mortgage banks do not have access to the best jumbo loan options. This might be the biggest reason why size might matter, as this lack of jumbo access hurt JVM severely in years past. Our new mortgage bank is extremely well-capitalized, giving us access to every major jumbo investor on the market.
  2. Technology. One of our team members interned with a mortgage bank that still does almost everything on paper, including taking loan applications and storing files. This total lack of technology impacts both borrowers and referral partners because it creates more work for them and it makes it much harder to track status and provide updates. Today’s tech can make the entire mortgage loan process far smoother and easier for all parties involved when it is employed correctly. This is particularly the case when it comes to CRMs (like Salesforce) and Point of Sale/application platforms (like Blend). These third-party applications are available to both large and small lenders alike. The key is the lender’s ability to adopt and implement the latest and best tech at all times. I frequently remind our team that this is JVM’s “Super Power” simply because we are so good at doing so.
  3. The Loan Officer and Team. This is an obvious and major factor, as lender size and efficiency is irrelevant if the loan officer and her team are not exceptionally efficient and well-organized.
  4. Size of Underwriting Ops Staff Relative to Overall Volume. No matter how good a loan officer and her tech and loan products are, she will be hamstrung if her underwriting operations staff is too small relative to the volume of loans it has. We fell victim to this in the worst way last summer, as we locked too many loans and our mortgage bank at the time had way too few people in their ops center to accommodate our volume. We have since hired many more people, learned to stem our refi volume when necessary and aligned with a new mortgage bank that constantly “over-hires” to avoid logjams.
  5. Systems. The mortgage industry is extremely complex because of the risks, competition and immense regulatory concerns. As a result, all good lenders and loan officers have to constantly tweak and improve their systems to effect constant improvements.
  6. Bureaucracy. Larger lenders necessarily have to be more rigid and bureaucratic because it is too difficult and too risky to manage a lot of one-off exceptions to gray-area rule violations. This is why big banks are especially bureaucratic. Hence, smaller lenders are sometimes more nimble.
  7. Economies of Scale/Volume Advantage/Cheaper Capital. Large lenders can sometimes offer lower rates because they can take advantage of economies of scale and get volume discounts. They also can sometimes access cheaper or more abundant capital, as we see in the case of big banks or mortgage banks going public.
  8. Interest rates. Interest rates are set by both the mortgage bank (how big of a “corporate margin” will they demand) and by the loan officer, depending on where she sets her own compensation levels (the more she wants to make, the higher her rates will be obviously). As a result, rates vary significantly from lender to lender and from loan officer to loan officer, irrespective of size.

So – is big or small better?

Once again, as long as a loan officer has access to all major products, the size of the lender is often irrelevant because of all the criteria affecting the overall loan process.

This analysis primarily applies to “mortgage banks” as opposed to the big “commercial banks,” which tend to be so large and so bureaucratic that they often have issues no matter how good the individual loan officer is. As I mention often, we get deals all the time that blow up at big banks.

If I were a Realtor referring loans to a lender though, I would ask about all of the above criteria because they will definitely affect my experience as well as my client’s, with respect to rate, fast closes, ease of experience, real-time updates and much else.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167

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