At Home Factor, we are proud to be a mortgage broker. Why? Because the decision between being a “lender” and a “broker” should come down to one question: which one serves customers best? Anyone taking the time to assess the trends in mortgage lending will come to the same conclusion: wholesale mortgage lending is providing customers with a far superior rate/service proposition than ever before.
Fifteen years ago, a mention of ‘mortgage brokers’ conjured images of subprime lending and egregious compensation practices. But from the turmoil of the financial crisis, the resulting legislation and regulation, and healthy industrywide introspection and entrepreneurship has come a new wholesale mortgage industry that provides better rates and better service than anything else available to homebuyers. And the proof that the old labels no longer apply can be found in the results. Here are a few outdated misperceptions about brokers and the modern reality.
- Brokers mostly make riskier loans. False! Although brokers serve all borrowers, the fact is that the FICO score of borrowers getting mortgages from brokers is about 5 points higher on average than the rest of the market. And, broker-originated loans carry lower LTVs and lower DTIs on average than the rest of the market.
- Brokers mostly serve lower-income borrowers but charge higher fees. False! The average loan balance of a broker originated loan is actually larger than the average balances in other channels and broker compensation is actually restricted by law and required to be consistent on each loan.
- Brokers only do loans with higher interest rates. Wrong! The average note rate on a brokered loan runs 8 to 12 basis points lower than rates in other channels. That means that the 1.4 million borrowers who got their loans from a broker last year will save an average of $200 per year or $6000 over the life of their mortgages.
- Service can’t be as good since brokers don’t underwrite each loan. Not anymore! Large mortgage wholesalers were the recipients of a big chunk of the $61 billion in public equity raised by finance companies last year. These companies have used that money to make enormous investments in people and technology and have made their underwriting process as painless as it can possibly be. And by specializing in “back office” functions, these companies provide borrowers with best in class underwriting which leaves brokers to specialize in advising, educating, and guiding borrowers throughout the process.
Winston Churchill once said, “You can always count on Americans to do the right thing, after they’ve tried everything else”, and the same is true of the mortgage industry. Through recent advances in wholesale lending, we have finally arrived at a mortgage ecosystem that produces the lowest costs and best customer service for American homebuyers. Home Factor is proud to be a part.