When getting a mortgage (technically a mortgage is a conveyance of interest in a property for a loan so I think it’s the borrower who “gives” the mortgage but everyone refers to it as “getting a mortgage”) it’s not just about getting the lowest rates and up front costs. Sure that matters but it’s also about the ability of the lender to actually close the deal since their rates don’t matter if you can’t actually buy the home. You would think that would be pretty simple wouldn’t you? But based upon my experiences it sure seems like the banks have a much harder time closing deals than the mortgage bankers I deal with.
In the interest of full disclosure I’ll just tell you up front that I have a horrible bias against banks. I absolutely hate them based upon my own personal experiences. I don’t even have a personal bank account. All my money is with Fidelity Investments, whom I adore.
Perhaps the biggest argument in favor of getting your mortgage from a mortgage banker as opposed to a regular bank is that they have a variety of lenders that they work with and they can target your loan to the right lender and the right offering for your particular situation. And if some glitch occurs during the transaction they can pretty much flip a switch and shift lenders immediately. However, when you are working with a bank you are pretty much stuck with their underwriting rules and their product offerings. If something goes wrong during the transaction you are pretty much SOL and you have to start all over with someone else.
At a high level the mortgage banking guys will also tell you that they are more efficient at making mortgage loans and that results in lower rates for borrowers. Their loan officers are more productive and their overall overhead is lower. In addition, whereas the bank may have their loan processing center in a remote location, the mortgage banker often has their underwriter and closer in the same facility as the loan officer. The loan officer may even have a dedicated underwriter and closer. This gives the loan officer a lot more control over the process and allows them to prioritize their deals as needed.
Having worked with both I believe the mortgage bankers are indeed more efficient. And this is why there is a wholesale market for mortgages because the banks can buy the loans from the mortgage bankers cheaper than they can originate them on their own.
Another reason given for going with a mortgage banker is a bit more subtle so I’ll give it to you straight from one of my mortgage bankers, Russ Martin of Perl Mortgage, who makes the case that the mortgage bankers have higher quality loan officers as a result of recent regulations that hold them to a higher standard:
…if you work at a FDIC bank as an LO [loan officer], you don’t have to pass any of the FBI background checks, federal and state competency testing, personal credit requirements, finger printing, annual continuing education, etc. The FDIC banks claim they do background checks anyway, but that isn’t the reality. As a rule, banks typically have not been where the best LOs work, but the SAFE ACT kind of made it official. LOs at independent banks are actually licensed. LOs at FDIC banks are just “registered”
But at the end of the day it’s my personal experiences with bank mortgages that have really cemented my belief that you need a really good reason to go with one (and I give those below). Let me share a few stories.
Bank Mortgage Horror Stories
There was the time that we were under contract to buy a unit at 8 E Randolph. This is the building that had outstanding legal issues from when a piece of the building fell off and put a pedestrian in intensive care. They also had a lot of renters in the building. During the underwriting process the bank suddenly wigged out on us and wouldn’t make the loan because of the building issues. At the last minute we contacted Guaranteed Rate and they came to our rescue – no problem.
Then, just a little over a month ago we were under contract on another condo and Chase was a little more than 2 weeks along on the mortgage process when suddenly the buyer inadvertently sent them a copy of the inspection report along with some other required documentation. The whole package got uploaded into the underwriting system, the underwriter saw the inspection report, freaked out (Have you ever seen an inspection report? They always have like 75 “issues” in them.), and demanded that every single inspection item be addressed as a condition of making the mortgage – a totally absurd requirement.
In this latter case we once again ran to Guaranteed Rate, who jumped into action, providing the mortgage commitment in 7 days and then closing 3 days later. Note that there were two weekends in there. And the best part of this story is that Guaranteed Rate ended up selling that mortgage to Chase – the very bank that wouldn’t make the mortgage in the first place!
There Are Good Reasons For Getting A Mortgage Through A Bank
Having said all this, there are in fact legitimate reasons for getting a mortgage from a bank – and I’m sure not all banks are the same, nor are all bank loan officers. Sometimes banks have really good mortgage programs. For instance, Fifth Third Bank (what the hell with that name BTW? Are they fifth or are they third? I don’t get it.) has a killer mortgage program for doctors that allows them to get 90% financing at 3.25% on a 10 year ARM and with a lower credit score than any other lender that I know of. Nobody that I know can touch that program.
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