What’s the Difference Between a Bank, a Mortgage Banker, and a Mortgage Broker?

Comments(0) By Mike Miller •April 29th, 2008

Which is best for you? The truth is, in many cases is does not matter what type of company it is, as it has more to do with the individual loan officer that you work with. There are experienced and honest loan officers at each type of loan source, and unfortunately the opposite is also true. Having worked at all three types of institutions over the last 22 years, I offer the following distinctions:

Bank.

Commercial Banks, Federally Insured Savings Banks, and Savings and Loans typically have a limited number of loan programs available. They offer loans that they believe will be the most profitable to the institution (Duh!). These institutions will usually have unlicensed loan officers who sometimes get paid more for originating certain kinds of loans, like adjustable rate loans for instance (no, I am NOT kidding). They are not very flexible and if you don’t fit in their boxes you have to spend weeks starting over with another source. You see the Banks “bank” on their relationship with you to not shop around for a mortgage, and put up with their often slow loan processes. Think about this, what are the odds that you just happen to bank at a place that has THE BEST type of loan for your needs, and they offer it at THE BEST interest rate? Pretty slim chance huh?

Mortgage Bank.

Some of these institutions are large and some are quite small with only a few employees. Unlike commercial banks, they don’t have a bank charter, and take no deposits. Instead, they make mortgage loans using a large line of credit (a warehouse line) which is then repaid when they sell the loan to an investor. Have you ever received a mortgage from one institution only to have the name switched the first month? You probably worked with a Mortgage Banker. Mortgage Bankers have multiple investors which means they will have more loan options to choose from. Unfortunately, you do not always work with qualified or licensed loan officers, and they usually hide their compensation from the borrower (a loophole of being a mortgage “banker”). Many people work at mortgage bankers for that reason alone. A Mortgage Banker is definitely more of a loan specialist, but because they lack transparency, you MUST work only with companies that you have been referred to by a past customers.

Mortgage Brokers.

Mortgage Brokers have access to hundreds of different companies at a wholesale level. Mortgage Brokers use Commercial Banks, Mortgage Bankers, Savings and Loans, Finance Companies, and private investors to secure the best terms on the correct loan for the borrower’s needs. Loan Officers are typically licensed, but please don’t confuse that with being experienced, or trustworthy. We have all heard of the few “bad apples”, but like any industry, most professionals are looking out for the best interest of their clients. As a matter of fact, Mortgage Brokers MUST disclose all revenue, both from the client and the institution your loan is placed with (sounds like common sense to me). The independent nature of a Mortgage Broker usually ensures that the loan arranged for a client is well suited to their needs, but not all brokers are created equal, so get recommendations from someone you trust.

Capital Market Funding is a Danville based mortgage broker. We have dozens of Realtors who refer their home buying clients, and we have thousands of satisfied clients. Please see the testimonials page on this site for some actual testimonial letters.

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Filed Under: Borrower Tips