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Sometimes the Best Rate Is Not Your Only Consideration.

While mortgage brokers may sometimes find a slightly better rate or perhaps a less expensive one, the benefit of using a mortgage banker is the control he has over the loan process. When there is a problem with a loan file (and problems happen every minute of the day), you want your lender to be a banker, not a broker.

Just as a mortgage broker may have several lenders at her disposal, each of those wholesale lenders has hundreds of loan files sitting on the desk—all from different brokers. Whereas a mortgage broker might close 10 loans per month, a wholesale lender might close that many in a single minute.

Why do bankers fix problems more quickly than brokers? First, because they have direct access to their own files. A broker does not; she has to call the wholesale lender to get things fixed, all the while going through additional channels.

Here's how it works. A broker submits a loan file to a wholesale lender. Each day, the wholesale lender logs the files it receives, then distributes them to its underwriters. These underwriters are also still working on the loans that were given to them the day before. And if the wholesale lender is doing its job right, more loans are coming through that door at a brisk clip.

This broker's file is about to be underwritten, and it is assigned a loan number. Later that day, or longer if the lender is really busy (I've seen underwriting take five to seven days before a decision is issued), the loan goes to the underwriter for sign-off.

But wait: The underwriter notices that the borrower has two last names in her credit report. This might indicate that she was previously married. So the underwriter stops what he's doing and e-mails, calls, or contacts the wholesale lender's account executive that services that particular mortgage broker.

The account executive calls the loan processor and says, "Your applicant has two last names on her credit report. Do you know if she's been married before or is known by any other name? Can we get that cleared up?"

At first glance, this isn't any big deal, right? So what if she had two last names? What does that matter; she still qualifies for the loan, right?

Actually, maybe not. Two names on a female's credit report can indicate a previous marriage. Was she married to Mr. Smith, got divorced, and now uses her maiden name, Ms. Jones? If she was in fact divorced, the underwriter will want to see her divorce decree, because the divorce decree will show whether she is obligated to pay any spousal or child support, which could affect her debt ratios.

I'm not kidding here; this happens every day somewhere in the lending business.

But the communication chain to get all this straightened out is jumbled up. First, the underwriter calls the account executive, and the account executive calls the loan processor or loan officer. The loan officer tracks down the borrower and asks her, "Were you known as Mrs. Smith at some point?" or "Have you ever been married and are now divorced?"

Ms. Jones answers, "Yes, I was married to that idiot; what's wrong now?"

The broker says, "We need a copy of your divorce decree so that we can establish that you have no financial obligations to your ex."

"That was six years ago. I don't have that decree, and I don't know where to get it."

"We'll have to find the judge, the court records, your attorney, just someone who might have a copy of it. There's no way around this."

"Okay," says Ms. Jones and hangs up the phone. Now things come to a screeching halt. Gotta find that divorce decree. After several days and more than a few phone calls, Ms. Jones calls back and says, "Okay, I found a copy. I'm going to bring it over."

The divorce decree is delivered to the mortgage broker. It is then sent via overnight courier to the lender, who logs it in (along with all the other new loan files that have been delivered for approval by other mortgage brokers) and puts it in line to be reviewed by the underwriter who originally asked the broker to clear up the name discrepancy.

So far, this process has taken several days—not just because the borrower had to track down old papers, but because there is an ongoing time lag between the mortgage broker and the underwriter who approved the loan. When there are problems with a loan file, this "wall" between a broker and a lender can be a challenge. And it can make the difference between your deal going through or not.

This same scenario with a banker works a little differently.

The loan is submitted to the underwriter, which typically means that the loan moves from one part of the office to another. Even if it goes to another building or another town, it's still the same lender.

The underwriter picks up the file and begins underwriting. He sees that there's a discrepancy in the credit file. Instead of putting everything on hold, he calls the loan officer directly.

"David, your client has two last names on her credit report. What gives?"

"I didn't notice that. I'll call her. Hold on."

"Ms. Jones, there are two last names on your credit report. Have you been married and divorced?"

"Yes, I've been married and divorced."

"Do you pay any monthly alimony or support payments?"

"No."

"Do you have a copy of your divorce decree?" "No; that was six years ago." "Hold on."

"Underwriter, she's been divorced, and she doesn't have a copy of her divorce decree to establish whether or not she has additional monthly obligations. How else can we make this determination?" David asks.

"If we could get a copy of all her bank statements and we don't find any consistent monthly payments that we can't account for, then I could sign off on that. Her loan application says she has one dependent. If we can get a copy of her tax returns showing that she has received child support payments as income, then I'll be satisfied about her obligations and we can approve the loan." "Hold on."

"Ms. Jones, you show one dependent on your loan application. Is this dependent from your previous marriage?" "Yes."

"Can you get me 12 months' bank statements?" "Yes, I can do that right now."

"Mr. Underwriter, I have bank statements, tax returns, and a borrower's written statement that she is not obligated to pay support; she is the one receiving support payments, and we can document that."

"Great," says the underwriter. "We're good to go."

I can relate this story because it happened to me several years ago. Because I was the loan officer with the mortgage banker, I was able to discuss an alternative loan condition directly with the underwriter.

If I had been a broker trying to do the same thing, it would have taken days just to get a copy of the divorce decree. I wouldn't have had direct access to the underwriter to get problems worked out. I would have had to go through the "system" to get my documentation in front of the lender for review.

This change of control was crystal clear to me when I moved from San Diego to Austin in 1995. While I was in San Diego, I was a mortgage broker. When I moved to Texas, I began as a loan officer for a mortgage banker.

As a broker, sending a loan file was almost like sending one of my kids on the school bus for the very first time. I knew I had done everything right, but somehow I had lost control. My child was not just mine alone any longer; he was one of hundreds of kids at school. Yeah, I could call the school if there was a problem, but it wasn't the same.

As a banker, I could call the shots at each and every turn. Approval? Yep, got it. Draw closing papers? Pick up the phone. Fund the loan? Ditto. Pure control. I loved it. Yes, as a broker, I could search for a slightly better rate; maybe I would find it and maybe I wouldn't. But the pure peace of mind is worth much more.

I want to season this story with a couple of thoughts. A mortgage

broker who has been in business for a long time and has established a reputation in the mortgage industry as a knowledgeable, fair, and competent person has greater access to wholesale lenders and their staffs than other brokers who send in an occasional mortgage loan.

But when there are problems with a mortgage loan, mortgage bankers generally can make a decision on the fly. Brokers have to go through too many channels to reach the same level of efficiency.

 
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