I first used a mortgage broker when I purchased my second condo in the early 1990s. I was living in Boston, travelling several days each week, and impulsively decided to buy a new condo down the street from my current home. I used my friend’s mortgage broker, and it was an amazing experience. The mortgage broker came to my house, met with me at my dining room table to discuss my needs and current loan options, and then joined me in my office as I pulled relevant papers from my filing cabinet. We returned to the dining room table to complete the mortgage application. We completed the loan as I travelled by phone and by fax. Great service, easy transaction, competitive interest rate.
When I started helping people buy real estate in San Francisco in 2002, I noticed that mortgage brokers were often a better choice for most of my clients. Why? They had access to many banks' products, and could find several loan options for clients, allowing them to choose the correct product for their needs and get a great rate. Lenders seemed to have fewer choices for clients. My general practice is to make a few recommendations to clients and let them choose the lender/mortgage broker that best fits their needs.
In August 2007 as banks started becoming more aware of the problem loans that they had been making, I noticed a sudden and large difference in rates between the rates that direct lenders were offering clients, and the significantly higher rates offered by mortgage brokers (sometimes for the same bank's products). Are banks not trusting mortgage brokers any more? Are they trying to price them out of the market?
I noticed this article in the New York Times discusses this issue--that banks are bypassing mortgage brokers. I know some terrific mortgage brokers who provide great service at great rates for clients. I suspect from the bank's perspective, some mortgage brokers are terrific and send them good business with complete, accurate applications that have sound documentation of income, assets and credit. I also suspect that some mortgage brokers have sent the banks really lousy applications with obviously incomplete, inaccurate information . The kind of loans that go bad because the applicant was not credit-worthy in the first place. Penalizing mortgage brokers by not letting them submit applications on behalf of their clients, and only offering loans through this channel at higher rates seems to be unfair and also a practice that might hurt the banks in the future. Why not only take loan applications from mortgage brokers with proven track records, and stop doing business with the mortgage brokers who consistently wrote bad business? Bypassing mortgage brokers will drive them out of business and offer fewer options for consumers.