Mortgage Brokers or Lenders? Depends on Whom You Ask…

If Redfin is going to offer the best service in our markets, our agents have to know more about real estate, which means we have to amass a gigantic real estate knowledge-base, combining dry academic research with an anarchist’s cookbook of right-now street-smarts.

The latest knowledge-base entry, posted by email this Saturday, was Ron Lieber’s excellent advice on whether to work directly with a lender or to use a mortgage broker to shop for the best rates. My interpretation of the article was that working directly with a lender will save you $300 – $400.

It being Saturday night, superstar Redfin associate agent Chelsea Mitchell immediately zapped back, copying everyone, with her own interpretation of events here in Seattle. (Actually, Chelsea is one of the hippest people in town, so she probably wrote this — with one magnificently painted fingernail and an iPhone — at a rave.)

Chelsea often likes brokers better because under-staffed banks are now struggling to get deals done on their own. And Chelsea should know: she is responsible for working — night and day — with our Seattle lead agents to drive the escrow process, with as many as 50 active deals, and she is an unholy annihilating force if anything comes between a Redfin client and whatever that client was promised.

Chelsea with a Happy Redfin Customer

Chelsea with a Happy Redfin Customer

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From: Chelsea Mitchell
Sent: Saturday, April 04, 2009 8:18 PM
To: Glenn Kelman
Cc: [NAMES REDACTED]
Subject: RE: Broker vs. Direct to Lender? NYT Recommends Going Direct

Great article but this is the quote that really jumped out at me.

“All of this is happening just as borrowers need plenty of guidance. Mortgage rates are low, fueling demand for refinancing. But banks’ loan rules seem to change by the day, and many banks don’t have the staff to handle the volume.”

Banks like BECU (Boeing Employee Credit Union) and Bank of America are so busy that the loan processor becomes almost MIA during the entire process.  This leaves buyers completely freaked out, wondering if their loan is being processed, if the appraisal came back, etc.

Lately, banks are so busy that the buyer ends up needing to ask for an extension.  This can then put the buyer in a sticky situation and sometimes a costly one too: there can be a per diem charge stipulated in the contract for every day you don’t close.

So, that said, I’d beg to differ over how much of a “better deal” you really are getting. I’d be willing to pay the mortgage broker a little extra to be reachable, explain processes and get my loan processed on time, just for peace of mind.

Just something to keep in mind when advising our clients on loans…

*~*~*~*

Sara Masey, similar to Chelsea in many ways except, possibly, for the rave, chimed in with similar experience working on tons of deals in Southern California.

I do agree that there is a trade-off. Going through a broker -– you definitely have “a live person” to go to with questions and status updates.

With banks — Bank of America, Countrywide, etc. -– they are completely under-staffed and you rarely speak to the same person twice so it is very frustrating not only to the clients but to the Realtors as well. You think you have fulfilled their underwriting requirements and then receive another list a few days before loan docs are to be in escrow — asking for some of the same items as on the previous list even though those items were already sent.

*~*~*~*

And here is the original summary of Ron’s article…

From: Glenn Kelman
Sent: Saturday, April 04, 2009 6:46 PM
To: REOPS
Subject: Broker vs. Direct to Lender? NYT Recommends Going Direct

Hi everyone,

The NYT published a piece today arguing that consumers may get a better deal going direct to a lender rather than a mortgage broker.

Here’s the practical upshot:

  1. Lenders often offer lower fees: The U.S. government last year published a study of 7,560 30-year fixed-rate FHA mortgages that closed in 2001. When mortgage brokers were involved, consumers paid $300 to $425 in fees, “other loan characteristics being equal.”
  2. Brokers are getting cut out: Chase no longer works with mortgage brokers, limiting their ability to shop for the best loan.
  3. Take a weekday off to compare rates all at the same time: the NYT recommends picking one type of loan, say a 30-year fixed-mortgage, and comparing prices all on the same day, so rates don’t change. Who to call: credit union; a few community banks; a big national bank; the bank that has your checking account; your current lender (refi only); a mortgage broker
  4. Get a straight answer on how a broker is paid: if you’re using a broker, ask point-blank if his or her yield-spread premium (what the bank pays the broker) would be lower if you were in a different loan.
  5. Ask the mortgage broker if he guarantees the rate and costs in a good faith estimate (GFE): one broker quoted in the article says, “If I’m wrong on my good faith estimate, then I pay you.” If your broker won’t eat any costs beyond the GFE projection, he’s playing you.
  6. Ask the broker to sign a document promising to be your fiduciary: a fiduciary is someone who is legally liable if she does not put your interests ahead of her own. This may not be practical advice, since most consumers aren’t comfy writing their own contract, though it could be a simple letter: “In signing this document, I agree to act in the next 60 days as [Client Name]’s fiduciary in investigating and recommending a loan, putting his interests ahead of my own.” Of course, a real estate agent should also be a fiduciary.

Regarding #2, we here at Redfin would probably also add that it is probably a good idea when buying an REO to call the bank selling the property; some banks require buyers to get a pre-approval at least from their own lending arm, and there may be less hassle over the assessment…

*~*~*~*

So now Chelsea is sitting in my office, and we both agree that if you work with a lender directly instead of a mortgage broker, you can save a few hundred dollars in fees but you need to make sure the loan officer doesn’t screw up your closing. Thanks to Ron for doing the original research, and to Chels and Sara for providing some juicy local insight. Let us know if you’d like to hear more of these discussions, as we can start posting plenty more from the knowledge-base to the blog.

In the meantime, what has your experience been comparing mortgage brokers to lenders?

Discussion

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  • Karl Heckenberg

    Interesting piece but I add this; mortgage brokers still have to have their loan underwritten and funded by Countrywide, Wells Fargo etc.

    The process isn’t any quicker. I think some of the responses about mortgage brokers are really about correspondent mortgage bankers who
    can underwrite and process loans internally and then sell the loan after it funds to Countrywide or Wells.

    Karl

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    Thank you for sharing this very insightful article on mortgages. We only hope that there will be a good solution for the growing number of mortgages and foreclosures.

  • Marjone Jones25

    Mortgage brokers or lenders? Depends on who you ask … If the general offer the best service in our markets, our agents have more information on real estate, which means that we need to assemble a massive knowledge base of real estate that combines academic research with a dry anarchist book Kitchen currently street smarts. The last entry knowledge base, sent by email on Saturday was Ron Lieber excellent advice on the opportunity to work directly with a lender or to use a mortgage broker to buy the best price. My interpretation of the article is to work directly with a lender you will save $ 300 – 400th $ It is Saturday night, the superstar Joint Liaison Chelsea Mitchell immediately zapped back, copying all its own interpretation of events here in Seattle. (In fact, Chelsea is one of the hippest people in town, so she probably wrote it – with a beautiful painted fingernails and iPhone -. At a rave)

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