There are three primary channels for funding mortgages: (1) Commercial Banks; (2) Mortgage Banks; and (3) Brokers. There are major differences between the channels.
Commercial Banks dominated the mortgage world after the 2008 meltdown but their market share has been shrinking in recent years. Commercial banks include Wells Fargo, Chase, Citi, U.S. Bank, and B of A. Their advantage is their low cost of funds – they can access deposits to fund mortgages.
Commercial bank disadvantages include their size and appraisal quality. B/c they are so large and bureaucratic, they cannot come close to the speed and service that mortgage banks can offer. In addition, most of the big banks use national appraisal management companies that are unable to manage appraisal quality.
Listing agents often won’t accept offers with big bank financing b/c of their reputation for not performing.
Mortgage Banks have been taking market share from commercial banks primarily b/c mortgage banks can offer far better service. Mortgage Banks include Quicken, Loan Depot and Homebridge at the national level, and RPM, Opes Advisors, Summit Funding and JVM Lending at the regional level.
Mortgage Banks only fund mortgages and do not hold deposits or perform any other functions of a commercial bank. Mortgage banks use lines of credit to fund mortgage loans that they then sell to investors or third parties on the secondary market.
Mortgage banks have many advantages including (1) the ability to underwrite loans in house; (2) the ability to move much faster than big banks and most brokers, and (3) the ability to staff and maintain their own appraisal management company with skilled and local appraisers.
JVM left the broker channel (discussed below) in 2014 b/c we could not control the underwriting process or offer sufficient speed, and b/c we suffered from so many appraisal issues.
Brokers dominated the mortgage world prior to 2008, but they now make up only a small portion of the market. They do not underwrite or fund their own loans. They instead package and submit their loans to other mortgage banks for underwriting. They have no control over the underwriting process or their appraisal pool, so they usually cannot guarantee the speed or the appraisal quality that most mortgage banks can. The one advantage that brokers do have is that they can access whatever wholesale mortgage bank is offering the best rates or terms at any given time.
I should add that JVM still maintains many of its broker relationships for tricky loans or unique products we don’t offer within the bank. We still, however, fund over 98% of our loans through our mortgage bank b/c the speed, appraisal quality, underwriting and terms are so much better.
Jay Voorhees at (925) 855-4491
Real Estate Broker, CA Bureau of Real Estate, BRE# 01524255, NMLS# 335646