Warning: Mortgage Rambling Ahead.
From the Inbox:
Hello, I working with a reporter at <Insert National TV/Media Company Here> tomorrow on a story that is essentially a consumer’s guide to finding the lowest possible mortgage rates with a focus on the difference in rates between smaller community banks and the larger banks. Why are smaller banks often able to offer lower rates and is there any tradeoff between going with a smaller bank vs a larger one?
We have some theories – mainly that community banks have less overhead and are therefore are likely willing to take a lower margin but just wanted to get some other opinions.
Boy, did she just open up a can of worms there.
In plain English: How do consumers get the best deal on a mortgage?
My reply:
In the mortgage business, you have mortgage brokers, mortgage bankers and federally chartered banks.
Mortgage brokers are just that — they don’t loan their own money, they just broker the deals out. Mortgage banks lend their own money by getting warehouse lines of credit from the big banks (generally) but they don’t do stuff like savings accounts, credit cards, etc. Then the federally chartered banks do everything – mortgage lending, credit cards, savings accounts, etc.
As of right now, the mortgage brokers and mortgage banks are regulated by each state. The federally chartered banks are regulated by either the OTS or the OCC — so they don’t have to “answer” to the various state regulators.
And now for the question of “why do people get a better deal at smaller banks…”
The truth is, that in the mortgage market, what kind of “deal” a consumer gets almost always comes down to the loan officer who is pricing the deal out.
A consumer could go to Small Bank, USA and shop rates from two different loan officers and get two different rates – and you might be surprised at how different they could be — even at the same bank!
I then went on to speak about secondary marketing, investor pricing and some other things that I won’t get into before you fall asleep reading this but I saved the one little secret for TPREG that everyone really you really want to know… the two most important questions you can ask your loan officer that will give you the best chance at getting the best deal on your mortgage.
Here are the two questions to ask your loan officer that will give you the best chance at getting the best deal:
- Do you have access to direct investor pricing?
- Do you have in-house underwriting and doc drawing?
The reason questions give you the best chance at getting the best deal on a mortgage is relatively simple: Fewer hands in the money pot that could lead to higher rates and faster turn times which can lead to shorter lock periods.
If the answer to both of these questions is no, remember it doesn’t mean that you are getting a less-than-optimal “deal”, it just means that the loan officer has an anchor tied to both legs as he swims out in the ocean.
But if it were me… and I was shopping for a mortgage… I would make 100% certain that my loan officer could answer yes to the above two “most important” questions you can ask.
In my opinion.
And yes, I have seen a few Ironman loan officers with two anchors tied to their legs out-swim a loan officer with no anchor weighing him (or her) down…
But not very often.
About the Author: Justin McHood is a mortgage broker with VanDyk Mortgage Corporation. You can find him at Arizona Mortgage Team, on the Zillow’s Mortgages Unzipped Blog, and at most East Valley Friday Nights gatherings. He’s the one in the blue shirt.
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{ 23 comments… read them below or add one }
Thanks Justin – you've made my day. In my real estate career I've whittled down who I refer folks to exactly because of the things you stated – I just hadn't put a name on it.
The two local lenders I recommend can both can answer “yes” to your questions – there are some other great originators in our town (with anchors tied to their legs), but in the era of TILA changes and other delays, I highly recommend dancing with the one that brung ya!
Navy Chief, Navy Pride
Honestly the whole industry is a scam. Just two generations back the price of homes was more reasonable because you could not get a loan to buy a home, you had to save the money up for years. So, houses had to be of a reasonable price before someone could buy it. Now that the banks loan out money, the prices of houses have gone up because everyone involved from the planning, designing, building, selling processes all raised their prices since now the banks were giving out loans for far more than the cost of what a home used to be. By doing that, they changed the price of homes for everyone and it is no longer a feasible option to save up and purchase the house outright.
-Tyler
you've made my day. In my real estate career I've whittled down who I refer folks to exactly because of the things you stated…..
As a former mortgage broker, I believe you can get good deals without answering “yes” to the above questions. More importantly, will your loan officer disclose rates and fees (Good Faith Estimate) and will he/she return calls and e-mails promptly? Does your loan officer answer all your questions thoroughly? I found rates didn't vary much among lenders. The key is your loan officer. For more information, see “Getting To Closing” (http://www.CherylLPeck.com).
A little off subject but I was wondering if anyone is invited to the East Valley Friday Nights gatherings?
Great article with lots of good info. Have to keep my eyes opened.
Great Justin! This post is very useful. I would consider it when the answer is YES to both questions but we can bend on our decisions sometimes.
Good Information – I think having in-house underwriting is so important. We've seen ridiculous delays when we've had clients working with lenders who have out-of-state underwriters. It's a nightmare – you can't reach them for questions or even for basic status updates.
Paul – *ANYONE* is welcome at EVFN. You can always find out where this week is happening at http://www.phoenixfridaynight.com/category/pfn/...
Excellent! your post is just informative and giving us an idea in getting the best deal.
Watching out your coming post as your post are with good quality.
Homes for Sale Ogden Utah
Thanks for the link Jay. Jayson and I will see you around soon I suspect. Have a great weekend!
I wonder if I should make a list of excuses that you may hear as to why someone doesn't have in-house underwriting… that way you would know what to look for!
Thanks for commenting, it is our time to get back at you down here in the desert — as you have had 70 degree days when we have had 115, we are about to have 75 degree days when you have -15!
Justin
JR,
True. I would use these as more of a rule of thumb and not a “have to” kind of rule. And whatever you do, please don't ask me if I currently can answer “yes” to either of these — I might try to tell you how great of a swimmer I am!
Thanks for commenting —
Justin
Cherylsbooks,
I agree with you when you say “the key is your loan officer”… I think that matters more than ever in today's crazy mortgage-world.
Thanks for taking the time to share.
Justin
Joe,
Sweet. Thanks for giving good feedback, it is always nice to hear. My goal is to just call it like I see it — realizing that I don't see everything and sometimes I get it wrong.
But if people who are “in the know” agree with me, it isn't always a bad sign…
Justin
Tyler,
You had me at “Honestly, the whole industry is a scam…”
I agree.
The mortgage business is built from bottom to top on concealing information — NOT transparency. Concealed information is (in my opinion) rarely a good thing and in the mortgage business what it allows is people to push their own agenda/greed without others supposedly knowing.
If there ever was a business that needed reform from the top down, it is the mortgage business.
In my opinion.
But whoever is doing the reforming will most likely start at the bottom (the originator) and stop there — but it needs a total overhaul. There are way, way, way too many “hands in the pot” between the organizations who have the money to lend and the person who wants to borrow.
Just my opinion.
Thanks for taking the time to comment!
Justin
Justin, thanks for the post. I needed to be remind about how less hands in pot can offer sometimes better rates. Also the in house underwriting is a great way for a lower rate when negotiating. Thanks for the tips Justin.
Justin, thanks for the post. I needed to be remind about how less hands in pot can offer sometimes better rates. Also the in house underwriting is a great way for a lower rate when negotiating. Thanks for the tips Justin.
I recommend all my buyers use local bank loan officers. I have found them to be much more responsive to me and my buyer's requests.
Just a word of wisdom, if you get a client who is determined to use a finance company advertised in the back of their professional journal…be afraid, be very afraid. Although I strongly counseled my client against using this finance company, she proceeded. Needless to say, the financing rate the company promised never materialized. Luckily, we found a local bank who pulled the rabbit out of the hat and closed the deal in seven days.
Justin,
It's a breath of fresh air to read a tell it like it is approach to finding a good deal on the mortgage. It was also impressive to see you talk about how reform should actually take place.
It's easy for people to criticize but alot more difficult to come up with some common sense solutions. The people that can fix these problems are not the politicians it's the leaders of the real estate and mortgage industry. The people actually doing this on a day to day basis.
I look forward to more of your insightful post about mortgages.
http://studyofloan.blogspot.com/
also, never hurts to have a broker friend. like you said, it all depends on who it is. everyone is capable of giving you a good rate, it's just up to them if they actually will.
Great article with lots of good info. Have to keep my eyes opened.of the possible that will happen in tv