Banks vs. Mortgage Companies
There has been a long running debate as to whether a borrower should use a Bank or a Mortgage Company to obtain the loan for their home purchase or refinance. The question of which type of lending institution would provide a better rate, better service or best advice is often a concern for most borrowers. Borrowers are also looking for high integrity and stability in the lending institution. Some borrowers are even worried that the company lending the money may go out of business and the consequences that such an event would have on their loan. Oh, and of course everyone wants the best price.
First let’s dispose of the myths. After your loan has been settled and the check has been cashed, it doesn’t matter if the lending institution goes bust. Someone else will takeover the servicing of your loan without any change to the terms of your loan. There is a concern however, if the lender were to go out of business prior to your closing. This event could jeopardize fees you’ve paid, the rate you have locked, the loan approval and the timing of your closing. Fortunately, this rarely happens since most states monitor solvency of lenders on a regular basis. Another myth is that the monthly payments will be made to the institution that “holds” the mortgage. In the vast majority of loans issued, the mortgage is sold off into a large pool of loans, called “Mortgage Backs” that are sold back to the public as securities. The monthly payments on a mortgage are made to a servicing entity that collects the payments and allocates the portions for principal, interest, taxes and insurance. They also maintain the account and act as the borrower liaison. So unlike what most borrowers assume, they have no ownership position in the loan.
Can a Bank be better priced? The answer is sometimes yes and sometimes no. Pricing structures and programs will vary greatly from bank to mortgage broker and from bank to bank as well. Pricing will not be as dependent on the type of institution as it will be on the programs the institution has available at that time. Sometimes a Mortgage Banker or Broker will be better priced than a Bank but then a few weeks later the one with the best pricing may flip flop. It is important for consumers to check all sources and not be limited because one is or is not a Bank.
Do Mortgage Bankers and Brokers have a better product menu and greater expertise than a Bank? The answer again is sometimes. As in the scenario of price, service and competency are to be judged by the individual rather than type of institution.
The important distinctions are, reputation, resources and accountability. Almost everyone knows a friend, relative, neighbor or co-worker who has recently had a mortgage borrowing experience. This is a great way to get gather the names of the better mortgage loan salesperson a/k/a originators in your area. A mortgage loan originator will be very fearful of losing a valued referral source due to bad feed back from you. That fear stems from the fact that they probably receive other referrals from that source as well. The accountability of the loan originator will help keep them on their toes for you. Once you have a list of accountable, reputable loan origination candidates, you can see if the advice, programs and pricing they offer suit your needs. The result should be the best overall loan and mortgage experience for you.
This article is based on information and research from articles written by Barry Habib