Mortgage broker or do it yourself?

Question

Hey there,

I was wondering if REIs apply to lenders directly or use mortgage brokers? through what I have heard here and there, investors have been applying themselves. Could you list pros and cons of each?

I'd think one of the pros of applying directly to lenders is the power of negotiation based on what you want for your investment.

I'd also think a con for using a mortgage broker is the added expense for the broker.

Thank you in advance.

Chris Mason · Answer

Hi @Argin Simonian, and thanks @Russell Brazil.

The brokering versus direct lending debate is a bit of a red herring. Consider....

• If brokered mortgages consistently got  better rates/terms, direct lender LOs would be out of a job. 
• If direct lending consistently got better rates/terms, mortgage brokers would be out of a job.

I'm licensed to broker mortgages and work for a mortgage bank, so I'm active in both worlds. Right now, most Fannie/Freddie stuff, I keep my LO hat on because direct lending is a better deal. Most Jumbo stuff, on goes the mortgage broker's hat. But in six months, that could shift. Competitive forces keep the various channels, direct/retail lenders, wholesale lenders, correspondent lenders, etc, trying different things.

There's also more to it than just seeing who has the best interest rate pricing. One big bank in particular is often very competitive on the interest rate pricing, but I know from experience that it takes those idiots 2-3 months to close even the simplest of transactions no matter how well qualified the borrowers are, even if they are putting 40% down. So when a purchase contract hits my desk specifying a 25 day close of escrow, do I even look at where their rates are at? Nope, because it's a moot point. The contract says 25 days, and time is money. All I'd be doing is dangling something in front of the borrowers that they cannot have due to contractual obligations (obligations not present on refis, which is why I do still work with this bank from time to time), and that wouldn't be very nice would it?

Mark Buskuhl · Answer

There is alot more to it than "mortgage broker" or "mortgage lender".

Mortgage Broker- Has no decision making ability whatsoever. Brokers loan to a wholesale lenderwho will make the underwriting decision, close and fund. Compensation is up to 3.00% and disclosed to borrower but paid by lender. Compensation is also set at a fixed rate with each lender and cannot be changed but typically every 90 days. In lieu of lender paying compensation, borrower can pay but gets $$$ upfront rather than built into rate. Post-crash government rules.

Types of Mortgage Lenders (more flexible compensation regulations)-

Mortgage Banker(Non-Delegated a.k.a. Mini C or Mini Correspondent)- Brokers loan to a mini-correspondent lender that will make the underwriting decision, however the mortgage banker will close and fund with a warehouse line of credit to appear as the “lender”. Lender who underwrote the loan will then purchase the loan off the warehouse line in less than 2 weeks typically.  Due to capital and /or experience restraints, this type mortgage banker is unable to make underwriting decisions.

Mortgage Banker (Delegated) - makes the underwriting decision and will also close and fund the loan. All decisions are controlled by the mortgage banker. Loan is then typically sold or held in a servicing portfolio.

Credit Union/Regional Bank - Typically will act as a delegated or non-delegated mortgage banker. Not as efficient as this is not their core business.

National Bank - acts as a delegated mortgage banker and services the loan. Not as efficient as this is not their core business.

Taking it even further, how and where the mortgage banker sells their loans plays a huge role in what interest rates they can offer. Are they selling to FNMA, national banks, correspondent lenders, etc. Are commitments best efforts, mandatory, AOT, etc? When looking at a mortgage broker, that must use a wholesale lender (who by the way may also have a correspondent lending division and even a retail division), the mortgage brokers experience, volume and NW come into play as to what wholesalers will approve them and the rates they can access.

Won’t even talk about hard money. Different topic.

Who is best to work with? Get a referral and go with a local mortgage broker or either type mortgage banker. Insist to meet your loan originator face to face. You will have the best experience, interest rate and chance of closing on time. Stay away from credit unions, regional or national banks, online lead sites where you will get “competing offers”, and don’t ever think about an 800 number or applying to someplace you saw on a TV ad.

Russell Brazil · Answer

I don't think it needs to necessarily be a large mortgage broker. The mortgage brokers I use, one works for a medium size company and one for a larger company. Mortgage brokers don't do hard money loans, thats a completely different universe.

Basically for conventional lending i have 2 mortgage brokers I use. They have access to most of the same products, but one is better at jumbo products than the other, and one is better at hard to finance properties.

I have about 2 portfolio lenders I use for commercial loans, just location dependent as they typically lend in certain geographic areas.

I have 3 to 4 hard money lenders. This is partly location specific too as some won't lend in all states I do business in.

Darryl Putnam · Answer

Argin,

A good Mortgage Broker can be a key member of your team.  They have many lenders at there disposal. Given that ever deal can be unique a good Mortgage Broker knows exactly which lenders would be interest in each deal.  This save time in not have to talk with lenders that would not be interested.  My Broker even fills out the applications for me and does all the leg work.  Another huge time saver.

This all said.  I also have a good working relationship with a local portfolio lender.  If one can not get the job done usually the other one can.

Relationships Relationship Relationships.

Good Luck

Russell Brazil · Answer

You have it completely backwards actually. A lender is going to offer you worse terms than they offer a broker. Who do you think a lender wants to keep happier...you the person issuing 1 loan for them or the broker who might issues 100 loans a year for them. A broker is almost always going to get you better terms than going straight to a bank.

Mark Creason · Answer

Joel makes a good point here.  I have a lending source who typically would offer non-recourse on most of their single tenant net lease properties.  On Dollar Generals, they only do recourse as they currently have too many on their books and don't really want additional ones.  Knowing this, if non-recourse is important, I take it somewhere else.

Mark

Joel Owens · Answer

That's another reason I use capital markets mortgage brokers. They have dealt with the lenders before and KNOW they will close and not re-trade mid deal etc. Since returns are based on LOCKED RATES it is ultra important.

Now sometimes a buyer learns something with a property the last minute that affects the DSCR ratios and the loan terms and rate changes. That is not the banks fault but a seller disclosure issue on a key item that affects financing.

Some lenders way over promise and under deliver and it's bad business. Some will quote a low rate KNOWING they do not lock until the last week before closing and rate will usually not be close to those terms by then.

Jeff B. · Answer

Glendale is near Dodger Stadium, Griffith Park, junction of Hiway 2 & 134 ... Los Angeles County.  Just out that way today.

Russell Brazil · Answer

Get a referral to one. Online reviews show that a professional is good at asking and getting happy clients to write reviews. It doesn't show you how good they are at their actual job. Many professionals purposefully don't solicit online reviews so they don't have to deal with bad leads that come from them and take up time...they prefer to work only by referral. That is how I operate primarily.

Argin Simonian · Answer

@Russell Brazil great info!! and the best way to find brokers is to read their reviews?

Mortgage broker or do it yourself?

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