Boxes, Part 1

PART 1: The Lender Box

No this isn't about a Justin Timberlake song.
"I'm giving you a loan in a box..."
Don't even go there - you haven't heard me sing!

This is about the difference between a direct lender and a broker.

Another way of saying it,
it's about the difference between a Mortgage Banker and a Mortgage Broker.

The question seems to comes up from time to time and here's how I explain the difference.
I've was a Mortgage Banker for years and years.
I am now a Mortgage Broker.
Is that better?
No, it is neither better nor is it worse.
It is what it is.

Picture a lender, any lender.
While they may have a wide range of products they offer,
and they may offer the same programs at the same rates and the company in the next block,
they also have specific things that make them unique or different.

They have things they like,
They have things they don't like.
They have quirks both good and bad.

There are plenty of lenders around.
Many have retail outlets you can walk right into.
From the sidewalk, how do I as a consumer know which one is a portfolio lender?
Which one is very aggressive on manufactured homes?
Which one will not do a HELOC behind a Neg Am Loan?
Or of those that will, which ones will not go behind one with a recast of 125% and which ones will?
Looking at their windows, I certainly can't tell.
Walking into their lobbies, waiting in line, and even talking to the very young loan officer, I can't tell.

As an savvy mortgage person you know that even with a vanilla 30 yr fixed Fannie Mae, no two people have the same loan profile.
You didn't? Better go back and read this one: "The Right Answer".
All those factors can have a profound effect on the rate, terms and fees involved.

In mortgage terms that would sound like this:
"We, insert name of lender here, will fund this loan only after thoroughly reviewing that all terms and conditions detailed in both our 142 page book of guidelines and the secondary marketing guidelines set forth by the Federal Home Loan Mortgage Corporation have been completely satisfied."

The guidelines are not really 142 pages, I exaggerated a bit.
But in my slightly skewed metaphoric terms, it simply needs to fit in the lenders "box".
If it fits, it's a loan.
If it doesn't, it's a decline.

I know, it's not that simple.
There are exceptions to be asked for.
Possible ways around the rules or bending of said rules.
But in general terms, if it doesn't fit in the box - it doesn't fit.

Boy, was I just tempted to throw in a Johnnie Cochran reference there!


(Ok, I give in, but just a small reference.)

Direct Lenders may also have certain advantages.

For instance:
They may have direct underwriter access available.
On a loan file, if an underwriter sees something they cannot "un-see" it.
Submit a loan to an underwriter for review with something that should not be in that file, and it's too late. You cannot change it.

A real life example might be where a loan is supposed to be stated income, but the file sent to the underwriter has a W-2's included. So much for stated income, you just became full doc!

Hypothetically of course, let's say our mortgage banker might be able to, as he or she was hanging around at the water cooler, ask an underwriter what he or she might think about a typical and certainly hypothetical situation...

That underwriter may be able to give that mortgage banker an idea or two that might allow that loan to sail through easier and unencumbered - hypothetically of course.

The mortgage banker may also know the quirks and twists of their products better than anyone could.

Additionally, when I was a mortgage banker, there were programs and features that were available to only us (not the wholesale department).
We had favors we could call in from time to time.
We had access to instant automated underwriting decisions - Fannie Mae, Freddie Mac, and our sub-prime unit.
Not having to disclose YSP, and so on.

So lenders are not bad.
They are not good.
They are what they are.

Next time we'll look at this all from the brokers side.