Not all Mortgage Companies are the Same Why use a Mortgage Broker?
by Eric Hoffner
Cook & James is committed to building relationships in the community and wants to spotlight our friends and colleagues -- realtors, brokers, agents, and other industry experts – as guests on our blog. Previous guest posts have featured Tim Hur, Mario Fermin, Johnell Woody, Rena Johnson, Lorraine Beato, Joi Bostic and Kathy Delbridge. Today, in our ongoing guest blog series, we get a primer on the inner workings of basic mortgage loans from Eric Hoffner, a respected broker who’s been in the mortgage business for nearly 25 years. Eric is president of StrongBox Home Loans which serves clients in Georgia and Florida.
There are three major types of mortgage companies. All three do the same exact thing, however they have their differences. First, there are banks which are self-explanatory. Then there are large mortgage lenders, or mortgage companies, with no bank affiliation also known as correspondent lenders. Third, there are mortgage brokers.
Both banks and correspondent lenders have some things in common. They both originate, process, underwrite, close, fund and sell their mortgages in the open market. Almost all mortgage servicing is sold at some point during the life of the loan. In fact, most mortgage documents signed at closing disclose that they sell 95% of their servicing regardless of who originates it.
Overlays reduce risk for banks and lenders, but…
If a company underwrites a loan, they have to take some responsibility for the loss in the event the loan defaults. As a result, they have “lender overlays” or guidelines (or a set of guidelines) on top of the actual investor guidelines. An investor would be Fannie Mae, Freddie Mac, FHA, VA and the USDA. A lot of banks and lenders will have their own requirements on top of those from the investor, making it even more difficult to be approved for a loan. These overlays may include higher credit score requirements, lower debt to income thresholds, and higher reserve requirements, for example.
In addition, lenders that underwrite their own loans often do not like to take advantage of the most aggressive and creative products out there because of the obvious risk. One example of a creative product is a no income verification loan, of which there are three major types:
Loans for self-employed people and investors who can’t or prefer not to provide the standard income documentation, such as tax returns;
Loans that take advantage of the tax code to reduce the borrower’s taxable liability which reduces their qualifying income in the eyes of the lender; and
Loans for people with a lot of money in the bank but no verifiable income.
All of these types of no verification loans use revenue before expenses in the form of deposits or assets as income. Investors can equally use a rental market analysis or a lease to document that if the rent covers the mortgage payment, they automatically income qualify. The point is brokers have a much easier underwriting and a much broader product mix to choose from than mortgage companies that have to underwrite their own loans.
What makes a mortgage broker different?
What makes a mortgage broker unique is that they work with multiple lenders. A broker has the ability to shop a loan aggressively with whomever provides the easiest underwriting, the most aggressive product, the lowest rate and costs, and the fastest service as opposed to banks and mortgage lenders which have a captured market and only one option.
Economics suggest markets are efficient. In the broker world, lenders have to compete for the brokers’ business every day and competition drives down rates and costs. Thus, a broker has access to a pricing engine that stack ranks hundreds of lenders nationwide to search for the best rate and cost. Another advantage of a competitive market is that often a broker can provide for no lender overlays.
Another difference is that the broker is, in essence, a contract salesperson for a lender. The mortgage broker originates and processes the loan, but the lender underwrites, closes, funds and sells the mortgage in the open marketplace. The process is exactly the same but instead of one company touching the loan, there are two.
A broker, typically a much smaller organization, runs much more efficiently, has no fancy expensive office space to pay for, no layers of management or redundant support staff, and no cumbersome compliance department. As a result, brokers can run more efficiently, can operate more cost effectively, and can pass those savings along to customers.
Will a smaller broker’s mortgage be the same as one from “the big guys”?
As these lenders compete for the business of brokers, they provide advanced technology, origination software, marketing and support which gives the same feel as a larger corporation. The online applications, status emails and videos are very similar to their larger competitors.
The only difference between large mortgage lenders, banks and brokers is a recognizable brand otherwise, the mortgage is the same. It doesn’t taste any different and it doesn’t smell any different. All mortgages will have the same perks such as emailed mortgaged statements, online or automatic payments, and an 800 number to call for customer support. Two 30- year fixed mortgages with the same rate and costs will be the same regardless of which channel you go through. Regardless of lender, all of these loans will also end up being ultimately serviced by a larger mortgage company such as Chase or Wells Fargo.
Do your homework and pick what’s best for you
You should shop your mortgage as aggressively as you like. Ask for recommendations and check online reviews. Make sure you measure rates and costs along with the ability of the mortgage lender or broker to close on time and provide a high level of service. But the truth is, there is a good chance a broker nearby can provide lower rates and costs, faster and more efficient service, and a broader product mix.
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About Eric Hoffner:
In the mortgage business since 1997, Eric Hoffner founded StrongBox Home Loans after a 20-year career at Chase Bank. A small, locally owned mortgage brokerage located in the East Cobb/Roswell area north of Atlanta, Hoffner and his StrongBox team have closed over $1 billion in mortgage production, focusing on residential and commercial mortgages in Georgia and Florida and differentiating themselves by providing a more consultative approach to origination.
Hoffner and StrongBox pride themselves on doing loans faster, less expensively, and with easier underwriting all while making customer service paramount. Whether it’s a first home, second home or an investment property, StrongBox views each interaction like a million-dollar account and works as a cohesive team to provide a seamless transaction to exceed customer expectations. StrongBox harnesses decades of combined experience in credit, underwriting and financial fitness. Hoffner’s team can shop mortgages with traditional lenders or access multiple creative products including low credit scores, no income verification, investor and self-employed borrower options to secure the best pricing, program and service for each individual borrower. StrongBox employs the most advanced technology and relies solely on a business model of warm referrals.
In his time away from the StrongBox office, Hoffner likes to spend time with his family, travel and work on being physically fit.