for Every Homebuyer
Why Brokers Do it Better:
The Truth About the Mortgage Industry
When we say that "brokers are better", we aren't saying it as a light-hearted jab at large retail lenders, all in fun. We understand a truth about the mortgage industry that, unfortunately, isn't known to every borrower. A majority of our professionals actually first began their mortgage careers at large, top-heavy retail mortgage lenders processing tens of billions, or even hundreds of billions, in mortgage volume each year.
Though retail lending was fine for learning the industry's ropes, eventually we recognized that the clients we serve should have both quality service AND great pricing. More often than not, these lenders were incapable of providing both for a variety of reasons. Let's cover the differences between brokerages and retail lenders.
Oversaturated on Overhead
Brokers, Retail Lenders, and High Fee Business Models
First, what are the differences between how a mortgage broker and a retail lender operate? To put it simply, a retail lender will gather your information and quote you their own loan programs they can fund out of their own pocket. Think of them as "direct" lenders, who usually market directly to their audience. These include some very large companies that are easily recognized by mortgage professionals and first time homebuyers alike. While retail businesses do occasionally operate more personalized business models, nearly all of the prominent players in retail mortgage operate enormous nationwide operations comprised of call centers, which typically seek to establish client relationships through internet advertising, mailers, and outbound calls.
Conversely, mortgage brokers do not directly provide funds in the form of a mortgage loan to a client. Rather, as the term "broker" suggests, they serve as an intermediary between lenders and clientele, working with their buyers to search dozens (or hundreds) of lenders for the program and pricing that best suits the needs of the transaction, shopping on the client's behalf. Even when finding the right lender, the broker will still serve as the primary point of contact and facilitates the entirety of the transaction in coordination with the lender's representatives and various other transaction parties. Brokerages rarely operate call centers nor have operations spanning more than a handful of states (if operating out of their home state at all), and primarily source clientele from smaller-scale forms of marketing such as community events and real estate agent partnerships.
Cross Country Mortgage. Fairway Independent Mortgage. LoanDepot. Rocket Mortgage. Bank of America. Truist Bank. Guaranteed Rate. Any of these names will likely sound familiar to anyone actively searching the market for a mortgage, or anyone who recently was. And it would be unsurprising if so. These names encompass some of the largest retail mortgage lenders, whether solely providing mortgages or as the mortgage divisions of large banks, that can be found coast to coast. And they ALL suffer the same drawback that we as brokers allow you to bypass.
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Overhead
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Retail lenders of this level are typically massive, sprawling entities covering every state in the nation, with a towering corporate chain that closely resembles the following structure:
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C-Suite Executives (CEO, CFO, etc.)
Department Presidents (President of Closing & Post Closing, etc.)
Department Vice Presidents (VP of Funding, etc.)
Division Managers
Regional Managers
Branch Managers
Sales Managers
Loan Originator
You
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The loan originator performs the groundwork: advising the client, matching them to the correct program that best suits their needs, coordinating the efforts of various parties such as processors, title agents, and realtors, and ensuring closing is achieved in a smooth and timely manner. Unfortunately, in a retail model, at every level of management above the loan originator is an individual that expects a portion of the fees charged to you as passive compensation. The branch manager usually takes a significant cut, with only the highest corporate levels coming close, while middle management such as regional or division managers take smaller cuts in exchange for gaining compensation on much more loans than branch managers (as well as large base salaries).
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By the time the quote reaches the loan originator's desk, and then heads to you, it often has as as much as 5% to 6% of the loan amount in fees attached to the pricing. That's a lot of hands in the pie. But where do these fees go?
One of two methods are used: the lender decides to present themselves as a "low fee" solution, but in reality, they build the fees into your interest rate to yield a very high number; or the lender realizes that even their base rate without fees built in is above average, so they opt to avoid the risk of frightening rate-sensitive borrowers and present you with an above average rate with very high fees. This business model is wildly successful for generating large retail lenders hundreds of millions in annual profits especially in refinances, where closing costs and fees are generally not paid for out of pocket but rather with your home's equity, leading less borrowers to question these expenses.
Now let's take a look at the broker model:
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Brokerage (HP Mortgage LLC)
Loan Originator
You
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The brokerage is compensated with a margin of the loan fees to sustain its operations, pay staff, and maintain licenses. The rest of the closing costs would be faced anywhere you go (and never go to the brokerage), such as taxes, insurance, or title and escrow fees. That is where the overhead ends. You, as the client, no longer have to pay for the sales manager cut, branch manager cut, corporate cut, the CEO's 4th vacation in Bali, the party for top originators in Florida with company-paid hotels and first-class plane tickets, the corporate office's private chef and personal trainers, and all of the many bells and whistles that elevate their bottom line, and subsequently, your rates and fees. These are not exaggerations; such luxurious spending is commonplace at large retail operations, whether mortgage companies or any other business. Most of those higher-priced lenders I mentioned at the beginning of this page? You can actually get better rates by going through a broker rather than going to those lenders themselves, simply because we strip away the overhead. And it often happens, as we work with several of them.
And we haven't even discussed the flexibility of working with 50+ lenders yet, but we'll cover that on the loan program area. This, however, can be neatly summed up by pointing out that there is a close to non-existent chance that a retail lender can offer you something like a bank statement loan or no-income DSCR loan. And financing a fix & flip investment on a distressed property? Those chances drop even lower. You'll likely need a hard money loan for that.
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It's more than likely that you shop deals on transactions FAR less important than a mortgage loan. A food product, an online order, contractor services, and other day to day transactions can and should be compared to ensure the deal is a strong one. Let us get you the strongest deal in one of the most important transactions of a lifetime.
Myth #1
"Brokers Constantly Pull Your Credit at Every Lender They Compare, Hurting Your Score"
FACT:
The truth is that brokers do not pull credit multiple times except in exceedingly rare circumstances, using the same report for each lender. Not only that, but even in the unlikely chance it is necessary to receive another quote, you have a 14-45 day window from the first mortgage-related credit pull to have any additional mortgage inquiry have no additional effect. Most lenders do not like to share that window of time for obvious reasons, as it would encourage borrowers to get a second opinion.
At HP Mortgage, we go one step further, providing the option of a soft inquiry to provide accurate estimates of what your quote may resemble, leaving your credit untouched until you are ready.
Be wary of any lender that uses this myth. They do not want you shopping for a better price, and that isn't a great sign about the deal they can offer, nor their character.
Myth #2
"Brokers Lose Control of the Loan Since They Don't Underwrite Loans Themselves, Leading to Slow Speeds and Approval Issues"
FACT:
This is actually not only false, but entirely the opposite of reality. Having worked at a large retail lenders before, we can attest to the fact that if anything, retail underwriters are aggravatingly difficult to reach. Retail lenders insist on separating underwriters and loan originators, instead having various other parties, such as loan processors, acting as an in-between. This makes the process much slower and more stressful than necessary, with underwriters taking multiple days to respond through the processor, and the processor sometimes even adding additional wait time if they are busy with other tasks.
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At a brokerage like HP Mortgage, no such red tape exists. When we need answers, we can reach out directly to the underwriters of the lending partner. With no one restricting the flow of information, results flow back to us quickly. Large retail lenders typically have average turn times, from start to closing, of 30 days. Big banks with checking and savings business are even worse; 45 day closings are typical, and even 60 day closings are not unheard of, making your purchase offer much less attractive to sellers, or your refinance drag on far longer than needed. Conversely, several of our partners can close purchase loans in 14 days or less on average, and refinances, even faster. In some instances we have seen 7 day closings.
Myth #3
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"Brokers Lack Flexibility Compared to Retail Lenders, Since Retail Lenders Control Their Own Guidelines"
FACT:
This might have been somewhat true, if our brokerage worked with a grand total of 1 lending partner. Even then, we wouldn't have been more or less flexible than a retail lender, but right on equal footing.
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Good thing we work with about 50+ or so.
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Brokerages actually regularly help borrowers who have been turned down by a retail lender find approval elsewhere. Our ability to instantly search a database of hundreds of lenders, and quickly confirm eligibility with their representatives, puts us at the forefront of flexibility for our clientele. Nearly every practical financing scenario will find a solution within the HP Mortgage network; our list of financing options dwarfs the run of the mill FHA, VA, and Conventional programs retail lenders are so proud of, and 9 out of 10 times, we beat them on those too, sometimes by a margin of 1% on the rate, which is a huge number for rate comparisons.