Mortgage brokers put lender competition to work to benefit borrowers

Mortgage brokers put lender competition to work to benefit borrowers

Mortgage brokers put lender competition to work to benefit borrowers

Home buyers can get a mortgage loan from one of two major platforms: From a direct lender (a bank or a mortgage banker) or from a mortgage broker. Here, Mark Wells of Preferred Financial discusses the differences between the two and the advantages of each.

What is a mortgage broker and how does this business model work?

A mortgage broker is an independent contractor who has the ability to place your loan with a number of different lenders. Very much like an independent insurance agent, a mortgage broker can quote rates and terms from multiple sources and is not bound to work with a single lender.

Does the mortgage broker represent the lender in the transaction or the borrower?

In South Carolina, the mortgage broker is required to act in a fiduciary capacity, representing the borrower and the borrower’s interest in the loan transaction.

Does the broker decide whether my loan is approved or not?

Brokers have many tools that provide a high degree of certainty up front that a loan will be made, including automated underwriting systems, but they do not make the final underwriting decision on any loan.

Then why shouldn’t I go to a direct lender where the decision is made in-house?

If you go to a direct lender, your loan does not get approved by the loan officer you are dealing with. The loan officer will send your loan package to the bank’s underwriter, and that person will make the decision.

Am I better off dealing with the bank’s underwriter or the mortgage broker’s underwriter?

Although loan guidelines are universal and apply to both brokers and bankers, many direct lenders can have their own “overlays,” or additional conditions that they add to the standard guidelines. If a bank or a mortgage bank has an overlay that affects your loan approval, you will not be able to appeal the resulting rejection. On the other hand, a good mortgage broker will know his lenders’ overlays and can route your loan to a lender whose overlays (or lack of overlays) will not affect your approval.

What are other differences between a direct lender and a mortgage broker?

In addition to the fiduciary duty to represent the borrower’s interests in the transaction, good mortgage brokers will keep enough lenders in their portfolio so that you will benefit from that competition and receive the best rate. Good mortgage brokers will also make sure that they have some lenders who can underwrite the loan under Fannie Mae standards, and some who can underwrite under Freddie Mac standards in order to take advantage of their different approach to conventional loans. And in keeping multiple lenders, a broker will have multiple channels for jumbo loans, where the biggest range of underwriting guidelines exists.

I operate a mortgage broker platform and welcome questions and comments. I can be reached at 864-235-9596 or via email at

Or Text Me Now! 864-430-4856