When shopping for a mortgage, consumers are often confused about the differences between a banker vs. broker. Some use the terms interchangeably, assuming that because both professionals procure mortgages on behalf of their clients, they are one and the same.
This simply isn’t true.
In the simplest terms, a mortgage broker is the middleman between a client and a bank. A brokerage does not fund or service a mortgage loan, but rather works with clients to shop their loan to the bank that can offer them the “best deal.”
This was often code for whomever would pay the most to the broker, who would pass the cost to the client and pocket the overage. However, according to the New York Times, “New federal regulations forbid brokers to pocket premiums from lenders in return for steering customers into higher-priced, high-risk loans. And under the SAFE Mortgage Licensing Act of 2008, brokers have to pass state licensing exams in order to prove they know the rules of the financing game.”
With these regulations in place, consumers could feel more comfortable about the transparent practices of brokers. However, variety as their biggest selling has been drastically marginalized in the past several years. Strict federal regulations have reduced the number of differing loan programs offered by lenders and any underwriting flexibility some were able to use. A 30-year fixed rate loan backed by Fannie Mae or Freddie Mac be processed in a similar fashion at any lender. When financing through a broker, all of the loan paperwork clearly states which lender is funding the mortgage, whether it be a huge lender like Chase or Wells Fargo, or a smaller regional bank.
A mortgage banker funds the loan at the closing and has the back office support staff to process and package the loan, which they then sell to a bank or other "mortgage servicer," who the homeowner then pays monthly. They will then prepare the loan to be sold off to a bank or directly to the secondary market on Wall Street.
For the consumer, a mortgage bank is a transparent and easy process. With local processing and underwriting, the mortgage process is a simple operation that can be closed quickly (within 30 days). All of the closing documents are under the mortgage bank name.
The truth is that in this market, under the strict regulatory environment, mortgage brokers rarely make sense as a viable option for most consumers.
