The 3 Primary Mortgage Lending Channels: Banks, Mortgage Banks & Brokers
We publish this blog every few years because it always gets a surprising amount of interest.
It is relevant now because the broker channel seems to be expanding again much faster than anyone anticipated.
I explain why JVM is no longer in the broker channel below.
THREE PRIMARY CHANNELS FOR MORTGAGES
1. Commercial Banks and Credit Unions.
These big institutions dominated the mortgage industry after the 2008 meltdown but their overall market share dropped significantly over the last ten years, as mortgage banks and brokers (see below) reclaimed market share. The “big banks” include Wells Fargo, Citi, Chase, B of A and U.S. Bank, among others. Major credit unions include Navy Federal and USAA, but there are hundreds of others.
Advantages: Bank and credit union advantages include a low cost of funds; they can loan out customer deposits and sometimes offer low rates. They also can “portfolio” (or retain) tough loans that otherwise could not be sold on the secondary market.
Disadvantages: The big banks are very slow and bureaucratic largely because they are so heavily regulated. They also rely on national appraisal management companies that do not employ the best, local appraisers – so appraisal issues are common. In addition, their pre-approvals are notoriously unreliable because most do not pre-underwrite files.
Private Banking: Commercial banks have an offshoot for “high net worth” customers called “private banking.” These channels often offer exceptionally low rates that other entities usually can’t compete with.
2. Mortgage Banks.
Mortgage banks include Rocket, Caliber, Loan Depot, Guaranteed Rate, and Fairway at the national level. JVM Lending is also part of a mortgage bank. Mortgage banks do not hold deposits – and the ONLY thing they do is underwrite and fund mortgages. Mortgage banks use lines of credit to fund mortgage loans and then quickly sell the loans to investors or third parties to make money.
Advantages: Mortgage banks can typically move much faster than commercial banks because they are less regulated, smaller and more nimble. They can also set up their own appraisal management companies, ensuring access to local appraisers and much better appraisal quality.
Brokers do not underwrite or fund loans. They only “originate” loans and then send them to outside “wholesale” lenders for underwriting and funding. The broker channel dominated mortgage lending prior to the 2008 meltdown.
Advantages: Brokers can access dozens of different wholesale lenders and submit loans to whichever lender is offering the lowest rates or best terms at any given time. In addition, today’s brokers are much sharper and more closely regulated than the cowboys who populated the channel prior to 2008.
Disadvantages: Wholesale lenders force brokers to use national appraisal management companies (like the big banks use) and there are more frequent appraisal issues as a result. In addition, brokers have no control over underwriting (because it is not “in-house”) and turn-times/service. Brokers also have very few competitive options for jumbo financing.
JVM was in the broker channel for years but we left it in 2014 because we had too many appraisal and service issues and because we needed to access far better jumbo rates – which are about 1/2 percent lower in the mortgage banking channel.
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167