There Are Three Primary Channels In Which Consumers Can Garner Mortgage Loans
- Commercials banks and credit unions (they do commercial loans, offer checking & savings accounts, and do mortgage loans)
- Mortgage banks (they only underwrite and fund mortgage loans, and do nothing else)
- Brokers (they only “originate” loans, and then submit them to unaffiliated lenders)
I blogged about this in much more detail HERE.
We moved from the broker channel to the mortgage banking channel in 2015 to improve our speed and service (because we can control the entire mortgage process within our mortgage bank), to set up our own appraisal panel (this is huge in hot markets), and to access better jumbo rates, as mortgage bankers have far better jumbo pricing overall than anything that is available in the broker realm.
So – why would a mortgage bank ever broker a loan, or submit a loan to another lender to underwrite and fund?
One reason is to access a product or type of loan that is not available in the “correspondent channel” – or the “secondary market” in which mortgage banks sell their loans. As a reminder, mortgage banks fund their loans with large lines of credit (Warehouse Lines) and then re-sell the loans to various “investors” (big banks, credit unions, mortgage “aggregators,” Fannie Mae, Freddie Mac, etc.) in the “secondary market” as quickly as possible. But sometimes there may be a certain type of loan that we cannot sell in the secondary market and that is only available in the broker channel, such as some loans that require minimal income documentation.
The other reason is to access better pricing or rates. For much of this year there has been a price war in the broker world among “wholesale lenders,” or the various lenders to which brokers submit the loans they originate. Because of this price war, some of the wholesale lenders are offering rates that are so low we cannot ignore them in our effort to always do what is best for our clients.
As a result, we occasionally broker loans to some of these wholesale lenders. Brokering can be a lot more work for us and we tend to make less money overall (for reasons I won’t go into here), so we don’t broker often. But – we do willingly broker loans on occasion when it is in the best interest of our clients.
I bring all this up because a borrower recently asked us why we broker. Ironically, we were competing against a loan officer with a mortgage bank that did not allow brokering, and our rate was 3/8% LOWER than anything he could offer.
And… I rest my case.
Founder | JVM Lending
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