The mortgage industry has certainly changed over the past 3-4 years. Major lenders like Countrywide and IndyMac have gone out of business. Other major mortgage lenders like Wells Fargo bought the former Wachovia and Bank of America saw its status cut down by bad deals, bad press, and a tarnished CEO. Many homeowners want to take advantage of historically low mortgage interest rates – to refinance or even to purchase a new home. But how does one select a mortgage lender in today’s market?
First, mortgages can be obtained through a financial institution using the standard retail channel. This means that you, the borrower, has a relationship with a bank or credit union. You go to your local branch and meet with a branch manager or officer about a mortgage. These mortgages are typically what are called conventional mortgages – ones that the financial institution can re-sell to Fannie Mae or Freddie Mac. Your financial institution may still service the loan – you make payments to your bank or credit union – but the financial institution no longer owns the mortgage. If you are self-employed or have a complicated financial situation, the conventional mortgage may not suit you. However, if you have an existing mortgage with the institution, this might be the best place to start, particularly if you are looking to refinance your current mortgage.
There are also a number of local, regional, and national mortgage lenders that are not directly affiliated with a bank or other financial institution. For example, LendingTree is a national lender that accesses borrowers via the Internet. The national marketing of some of these operations may mean that they are not competitively priced for your local real estate market. Also, this is not relationship banking, but rather an attempt by these firms to generate as much business as possible when market conditions are favorable. The staff typically turns over and there is a lot of reliance on telemarketing, Internet marketing, and quick turnaround. Again, if you have a particularly complicated financial situation, these mortgage sources are typically not well-suited to your needs.
Finally, many borrowers favor the mortgage broker. A broker is authorized to work with a number of local, regional, and national financial institutions and mortgage lenders. They typically have a variety of lending products and are well-suited to work with the complicated borrower. Mortgage brokers largely rely on return business, so they tend to want to build a relationship with their clients. They seek return and repeat business, as well as referrals. The mortgage broker may use inexpensive Internet advertising, but not national or even regional advertising. They work on thin margins and understand that their niche is in offering the best overall rate and lowest possible costs with a premium placed on customer service. They are well-suited to work with borrowers with complicated financial situations because they tend to have a number of lenders and therefore a number of different loan products.
Currently, mortgage brokers must be licensed. The license is state-issued. There are now national requirements, as well. Brokers can be licensed in multiple states, if they pass the appropriate tests and maintain the appropriate continuing education. Most brokers are licensed in one or a few states due to the time and expense of the education, testing, and licensing. Because of the testing and the continuing education, brokers also tend to be knowledgeable about a variety of lending options and up-to-date on changes in regulation and laws, both newly implemented and on the horizon.
Bank and financial institution personnel do not currently need to be licensed. Financial institutions may have their own internal standards and requirements, but the education is largely focused on the specific financial institution’s suite of products. While the financial institution may be knowledgeable about competitors’ products, their knowledge may be limited.
In 2011, the mortgage lending requirements are changing to require that all lending personnel be licensed and the licensing is becoming more and more standardized with national standards taking precedence. The states will probably keep a piece of the licensing picture for some time due to the revenue (licensing fees paid on an annual basis) component, but the financial crisis has put greater emphasis on standardization and training. All license-holders will also require continuing education, another revenue source.
Seek the advice of financial planners, family members, co-workers, and neighbors when selecting your mortgage lender. Another good reference is your realtor or other realtors you may know. Do your research before getting into the mortgage market – research current rates, know your financial condition and any concerns, review your credit bureau, and monitor the real estate values in your neighborhood. Consider “interviewing” your mortgage lender – make sure he or she is someone you can work with and someone you trust. You will be sharing your confidential financial information with him or her.
Selecting a mortgage lender is an important decision. Be well-informed prior to selecting your lender and make sure your lender is working for you.