Direct lender Mortgage

toomtam2 · Joined: 11 Jun 2008 Posts: 4

When you're looking for a place to get a mortgage, you'll find there are many different types of mortgages as well as many different types of mortgage lenders. There commercial mortgage lenders, adverse credit mortgage lenders, mortgage brokers and direct lender mortgages. Many people don't know the difference between a mortgage broker and a direct lender. Although a mortgage broker loan and a direct lender mortgage are similar, the lenders actually are quite different. A direct lender mortgage is a mortgage that you obtained through the services of a direct lender. In other words, there is no middleman. All the dealings are directly between you and your mortgage lender.

A mortgage broker mortgage is one where you do the dealings with the mortgage broker, who is actually like a middleman between you and the lender. Both the direct lender and mortgage broker can gather all the important information they need from you such as income verification, personal information, credit reports, etc. They are both capable to discuss mortgage details and legal disclosures to you as well.

A mortgage broker may deal with many different banks and funding sources, whereas a direct lender mortgage is handled at one specific bank, the bank where the direct lender works. Whereas a mortgage broker works for many financial institutions, a direct lender usually works at one bank. When you get a direct lender mortgage from a direct lender, you will probably see the lender at the bank, but a mortgage broker could be anywhere at any bank. Another difference is that a direct lender is usually licensed to lend funds in all the states but a mortgage broker may only be licensed to borrow money in a couple states.

Contrary to what many believe, you won't really see a difference in the interest rate you're charged between a mortgage broker mortgage and a direct lender mortgage. Both of them get their interest rates from the secondary market rate. A difference may be with a direct lender mortgage, the direct lender has the flexibility to offer you a rate that they choose, but a mortgage broker may have to speak with the lender he works for first. Whereas direct lenders set their own guidelines, mortgage brokers cannot.

Another difference is in the mortgage fees. You will generally pay less in fees with a direct lender mortgage. Although direct lenders have to charge certain fees and costs for the loan, mortgage brokers will charge more because they make money off of customers like you. Therefore, you may find it higher to do business with a mortgage broker than if you have a direct lender mortgage. Let's face it, it's all about saving money.

:idea: :idea:

Steve Ching

There are actually no real differences in terms of time/closing costs between a direct lender and a broker. In either case, you will be dealing with a loan officer who will prepare an underwriting package. The package will be sent to an underwriter who may request further conditions from the loan officer. Borrowers will pay all costs either through rate, prepayment penalties, terms, or costs. Borrowers pay for the loan officers time, the underwriters time, and the cost and time for all the third parties involved (title, escrow, appraisal, flood cert).

The main difference is that a direct lender might only offer a few product lines while a broker can offer several different product lines. Some of those product lines will have lower rates for a given borrower.

In order to remain competitive in overall costs you need to be able to serve as wide a variety of customers as possible with multiple product lines. To this end, the vast majority of direct lenders are also brokers!

PS: With the ongoing credit crunch almost all loan production is currently being sold off to Fannie/Freddie/Ginnie and very few lenders are actually seeking to loan out their own funds and hold anything other then the servicing of the loan.

m2c · Joined: 03 Aug 2005 Posts: 767

Well …. “sort a”. Overall I agree with Steve that, in the majority of deals, there is not a major difference. But the pitch given is the trade industry hype and I was going to search for the Internet reference for the opposing sales pitch. Not worth it – both are over simplified.

To counter some assertions:
• Turn times with lenders can be faster since there is no transmittal delays and costs (although latter is nickel dime).
• A lender LO can sit down with the underwriter (literally in the office down the hall) and discuss intricacies of a particular case.
• Lenders cut their own deals with the GSEs and MI companies which might be beneficial to an individual borrower.
• A heavy percentage of deals end up in MBSs but I’m at a loss on the statement that lenders don’t use their own funds. This is one of the reasons why a lender can “fund” with a 5 minute turn-around time versus 24+ hours on the broker side.
• There’s the locked period in number of days which is more real-time with a lender. Never understood this 15-, 30-, 45-day bit. This is not how the real world works except if you’re window delivering.

In most cases, not a big deal either way – just thought Steve’s comments were a bit one-sided.

punani · Joined: 12 Dec 2008 Posts: 8

A well thought out reasoned post, but I must disagree that the GSE's will topple. In the current pseudo-socialist political environment we live in do you really think there will not be a massive WPA-like tax payer rescue of the mortgage system? We're on the verge of socialist universal health care and the rescue of greedy home borrowers - these same people won't let the housing market fall out of there never ending grasp for the daily control of our lives.

EricJ · Joined: 09 Jan 2009 Posts: 14 Location: New Jersey

I think the other important thing to mention is that as a borrower, you better have walked into the right direct lender if you are looking for the best deal. We know that some banks are more competitive than others. Some banks are willing to offer better deals on specific programs. Using a broker CAN help you to find that deal that is right for you AND at a competitive rate.

For example, there was a bank in MD that was in the wholesale business. Their focus was ARMs and Option ARMs. They offered fixed rate products but they didnt want to be in that business. They had much higher rates on fixed loans. If you walked into that bank directly and dealt with them on a direct basis, you still would not get a good deal on a 30 yr fixed. In that scenario, you would have been better off working with a broker and asking him/her to find you the best deal on a 30 yr fixed.