Monday, August 6, 2007

The Great Mortgage Lender vs Mortgage Broker Debate

With the current liquidity crisis going on (every couple of hours we receive notification that yet another investor will not accept new applications or, worse, will not close a loan we already have approved with them), I thought it might be a good time to talk about mortgage fraud and who tends to have the borrower's (and the lender's) best interest at heart.

I began my career at a wholesale lending company (Countrywide, if you must know), where I observed a whole spectrum of mortgage broker practices. Some were honest, many not so much. Additionally, over the years I've watched brokers come and go like the wind. When there's a refinance boom, everyone and their brother decides they ought to be selling mortgages, and when the party's over they go back to selling vacuum cleaners (not that there's anything wrong with that). Mortgage lenders generally figure out how to operate regardless of market changes, and the odds are better that you're dealing with someone for whom mortgage lending is a long-term career.

When I left Countrywide Wholesale, I went to work for a retail mortgage lender, which is an entirely different experience from dealing with mortgage brokers. For one thing, mortgage lenders don't want to get sued or lose their businesses, so they tend to educate their loan officers about pesky little details -- like the importance of obeying the law, for instance. The unscrupulous loan officer who works for a mortgage lender is not just committing fraud against his customer, he's also committing fraud against his employer.

Mortgage Brokers have no accountability really, and that's why so many people who are in for the quick buck are attracted to that arrangement. Once the loan is closed, the broker is never again involved. On the other hand, if I make a loan to a client and three months later said client fails to make their mortgage payment, my corporate office will call me and say, "You need to find out why Mr. and Mrs. So & So haven't made their payment." (I don't have to break their legs or anything -- I just have to give them a call to find out what's going on.)

Likewise if a closed loan gets rejected by an investor because I made an error, I'll be asked to correct it, pay for it or find another job -- depending on the severity of the circumstance. At the very least I'll have someone I work with every day give me the "you really screwed up for us" lecture, and no one likes to face that.

Now, for sure I've known some stand-up mortgage brokers, just as there are some bad lenders out there. But for the most part, in my experience it's best both to work with and for a lender as opposed to a broker.

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Anonymous said...

Having done some research into living conditions I have made the decision to move to the US! Apart from the medical care (which having just watched the film Sicko I am slightly concerned about) I have decided that there are more positives then negatives and am therefore very excited about the prospect of moving.
However I am concerned with purchasing a house, are mortgages over there the same as there are here? Do I need a large deposit and having spoke to a few people online I am concerned I wont be able to find a company to give me mortgage broker bonds.
and if I cant can I buy a house? Also I am familiar with the term surety bond so is a mortgage bond just a guarantee I will pay on time or is it more?

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