The following is an overview of the general differences of shopping for a mortgage from a conventional bank, mortgage broker, and mortgage bankers:

Bank - There is a wide variety of service and rates from one bank to another in the mortgage marketplace. Banks do a wide variety of things, take deposits, issue credit cards, make auto and personal loans in addition to mortgages, offer investment products such as bonds and mutual funds, etc. With more than one way to make money, not all of them are at the cutting edge when it comes to mortgage lending. Some offer competitive rates, some do not. Some banks prefer good credit customers, others have a wider product offering although they are still at a disadvantage compared to mortgage brokers and many mortgage bankers when it comes to program variety. Example, a particular bank may have a program for A paper , good credit customers, a stated income/lite doc program for borrowers who do not want to document everything, and a program for borrowers with less than perfect credit. If a borrower walked in off the street not knowing all the particulars of his/her own credit, etc. he or she may not realize all the options available to qualify. The borrower may decide to go the Stated Income route and find out their credit barely makes the cut (a 660 score versus 680 needed to qualify). Since the bank has only one Stated Income program, the borrowers would be disqualified and have to go out and shop another institution. A bank loan officer is much less likely to tell them the right place to go to. He may instead tell them to come back when there credit is improved. Many banks also charge application fees, so our borrowers would then have to go somewhere else and prossibly be charged another fee. Had they gone to a reputable mortgage broker or mortgage banker, that same broker or banker may have access to 4 or 5 different Stated or Lite Doc programs, one of which may have a lower credit score cutoff.

(Note: One advantage to using LoanShoppingPros.com is we are familiar with a lot of banks in your local area and what they offer. If there is a Bank that is more competitive for a particular reason, we will include it in our reccomendations.)

Mortgage Brokers - Mortgage brokers are specialists. They live, eat and breathe mortgages. There job is to to know the ins and outs of dozens of different loan programs. Good brokers should know, once they run a credit report and do some basic qualifying where to send a particular borrower. They have access to far more programs than a loan officer at a conventional bank. There are some disadvantages however with many mortgage brokers out there.

1. Sometimes brokering a loan can take a long time. A broker has put together a loan package and then send it in to an underwriter at another bank who oftentimes may be in another state. If that underwriter needs more info, getting additional documents into their hands can take even more time. Brokering a loan can often add days to the loan approval process. Technology and automated underwriting systems are closing the gap however on many loan programs.

2. Many brokers tend to be fly by night outfits. They open shop to make a quick buck and do not care much for their reputations. Many banks, mortgage bankers, and large mortgage brokers also play rate games, use deceptive advertising (covered elsewhere on LoanShoppingPros), charge excessive fees, etc. Most of the major excesses however tend to be found more among mortgage brokers, although all three types of insitutions are guilty.  

3. The 2007/2008 has forced some major banks to scale bank or entirely close their wholesale lending programs which in turn has hurt many mortgage brokers out there by giving them fewer avenues through which they can broker their loans. Some banks have also made the wholesale rates they offer mortgage brokers less competitive. Many industry professionals see this as an attempt by major banks to drive mortgage brokers to the sidelines and capture more market share. Major institutions also see an opportunity to shift blame for the 2007/2008 credit crisis on to the the backs of the brokerage industry when in reality all parties played a part in the mortgage market's unravelling. There are still enough wholesale lenders out there however, to make going to a reputable, professional mortgage broker worth the effort.

Mortgage Bankers - Mortgage Bankers are specialists in mortgages just like mortgage brokers, with one big advantage. They can fund and close there own loans in house. That means at many bankers, the processors and underwriters are in the same office, or at least the same town as your loan officer, which can greatly improve approval and closing times. A loan officer that can meet with his/her processor or underwriter at least once a week or more can tackle the many problems that often come up during the application process much more quickly and efficiently. Mortgage bankers also have many what are called "correspondent" relationships. A correspondent is another major bank that a mortgage banker sells closed loans too. Example, you local mortgage banker may be approved to underwrite loans according to C*t*bank, Cha*se, of Bank Of *, undewriting standards. Once the loan is funded, they turn around and sell the loans to those major banks on a loan by loan basis. The advantage to the consumer is when you walk into a mortgage banker you a getting a wider variety of loan programs, similiar to a mortgage broker, which means you have a greater chance at getting approved. Larger mortgage bankers often times also have their own in house programs through which they package and sell their own loans directly to major Wall Street institutional investors and on to the secondary mortgage market. Mortgage Bankers (mortgage banking licenses supersede mortgage broker licenses) can also broker loans just like a mortgage broker if they do not have a particular correspondent relationship or in house program.

Disdavantages of some Mortgage Bankers -

1. Some bankers get used to working with just a few lenders, so even though theoretically they can bank or broker your loan to many other lenders, they get used to working with the ones they are most familiar with leaving borrowers with fewer loan options.  However, even the lazier mortgage bankers with only a few correspondent partners can still offer a borrower more options than a major bank/direct lender.

2. Mortgage bankers should have an advantage when it comes to getting loans approved and processed because they have local in house underwriters. In practice, many mortgage bankers become overly focused on sales and suffer to some degree from understaffing or poorly trained personnel.

Conclusion/Summary - LoanShoppingPros typically prefers referring customers to mortgage bankers that we are familiar with. We do make exceptions for some well run and ethical mortgage brokers. It usually comes down to what type of loan the borrower is looking for and who the best bankers or brokers are in your particular area. When a we know a particular bank to have a better priced and serviced program to other mortgage bankers or mortgage brokers we'll include that conventional lender in our recommendations. A potential borrower most always be a good shopper no matter what type of outfit they are going to. There are questionable tactics used even at the most well known, nationally recognized lenders at particular branches and many times companywide.

Mortgage bankers and mortgage brokers, it they are competitive and well run can both deliver rates that are equal too and many times better than most conventional banks. A good broker or banker also provides invaluable help in guiding you through the application process. There is a common misperception among the general public that mortgage brokers and mortgage bankers are middlemen that add to the cost of the mortgage process. Reputable, competitive brokers and bankers (vs price gougers), do not inflate costs if they are doing things properly. Bankers and brokers get wholesale rates from other lenders. If you go straight to a bank yourself, that bank will not give you as an individual that wholesale rate. They will instead charge you a retail rate because if they are in the retail side of the business, they have retail costs. Meaning they have to now have the office space, employees, advertising expenditures to run their mortgage arm. Mortgage bankers and brokers can often get you a better rate than if you went into a particular bank on your own because it is what they specialize in. They are often times much more efficient at originating mortgages then regular bank retail networks. It is not unusual for a good loan officer at a innovative mortgage banker to close 2,3 or 4 times as many loans as his competitor at the local national lender or community bank down the street.