Mortgages are marketed (that is to say, offered to you) by several types of lenders. You can
find a loan from mortgage
brokers, mortgage bankers, banks, credit unions, and savings & loans. In most cases, the
lender earns origination
fees, and in the case of a mortgage broker, a broker's fee. The servicer is the company
where you, the borrower, send your payment.
What Is a Mortgage Broker?
Mortgage brokers are much like independent insurance agents, or, for that matter, your local
supermarket. They have access to many lenders (roughly equivalent to suppliers, such as
tomato companies) and many different programs (several brands of frozen, canned, or fresh
tomatoes). In some cases, especially where credit is not flawless, and nonconforming
properties are involved, a mortgage broker can find funding for you. (They may also be able
to find tomatoes for you, but that's extra.) They charge a fee, and are sometimes
compensated by the lenders. They provide a great service for many consumers, and originate
over 50% of loans in the country.
Mortgage brokers normally originate the loan, process it, and pass it along to a lender, who
sells it to an investor.
These investors range from state pension funds to government and quasi-government companies
such as the Federal National Mortgage Association (FNMA), or "Fannie Mae"; the
Federal Home Loan Mortgage Corporation (FHLMC), or "Freddie Mac"; and
the Government National Mortgage Association (GNMA), or "Ginnie
Mae." A mortgage broker can in many cases speed up your closing time, do all the processing, and get you a better rate.
The mortgage broker is compensated on commission, and he is going to have higher closing
fees. At a given mortgage brokerage house, for example, closing fees might be $700. But some
in the brokerage industry charge up to $1200 -- which some of their colleagues (and,
indeed, the real estate agents with which they work) might regard as gouging. A broker is
allowed to charge whatever he wants for loan processing or "doc prep" -- document
processing.
As is the general rule in shopping: ask. Ask what the broker's fee will be. You can then
make an informed decision as to whether paying that fee will be worth it over time
if you get a better deal on a loan.
Banks and Mortgage Bankers
The term "mortgage banker" can refer either to a loan officer who works at a bank or to the
bank itself. A mortgage banker generally sells the underlying loan to an investor, but
continues to service the loan.
Banks generally have a corporate approach, in which the mortgage bankers are told, "These
are the fees -- don't deviate from them." So there is more stability in terms of what the
person sitting across the desk from you is going to charge for his services .
Which Should You Use?
Whichever gives you the best deal. That's why you should shop around first and find out all
you can.
Some borrowers don't like the idea that the mortgage broker will find them the loan and then
exit the picture, leaving the borrower to deal with a lender. On the other hand, the
borrower will be dealing with a lender anyhow, and mortgage bankers might also end up
selling the loan on the open market. What does that mean? Well...
This Loan Is for Sale
There is a market for mortgages just as there are markets for tomatoes, potatoes, running
shoes, or designer suits. Your mortgage, once you get it, may be sold later to FNMA. FNMA
buys mortgages and, in some cases, also takes on the servicing of these loans, after
they are originated by the individual lenders. These loans usually carry the lowest interest
rates.
Some lenders sell loans to funding sources other than FNMA, but usually these are types of
loans that carry a higher rate of interest. Also, some banks and lenders hold their own
loans (portfolio lending) and make their own credit and lending decisions. These interest
rates vary widely.
If your loan is sold, you still have the same term, and the same loan; you just make the
check out to another institution.
Now we're ready to take a look at some of the places you might go shopping for a loan.