The way that a mortgage lender is structured is critical in the current mortgage environment. One structure that is getting a lot of attention is direct lenders (aka mortgage bankers). What that means is that the lender is allowed to do the appraisal in-house, the underwriting in-house, preparation of the closing documents, etc. You could say they operate as if they were the bank. Further, some lenders connect as a direct lender with numerous banks, such as Wells Fargo, Bank of America, Chase, BB&T, SunTrust, etc. The list can go on and on. This allows a direct lender to be able to operate as a mortgage broker and shop the loan and provide the best terms, but still retain control of the transaction, which is critical as the transaction becomes more and more complicated.
However, unlike a mortgage broker, who does not do much of the paperwork in-house and sends most of the file to the lender that they are brokering the loan to, a direct lender controls the whole process from start to finish. Why this is important, is that when you go to a big bank directly, or if you go to a mortgage broker who sends the loan to a big bank, then you will suffer from big bank loan processing, big bank underwriting, and most importantly big bank appraising. At a big bank they may send out one of hundreds and hundreds of appraisers that come from great distances and do not know properties in the local market, and the inevitable result is a lowball appraisal that kills the whole deal. A direct lender can use their own appraisal management company, which is only populated with a much smaller number of local, experienced, market knowledgeable appraisers.
It is important to know that some mortgage brokers have what are called “mini-correspondent” deals with some lenders, that allow them to mostly act as a direct lender. This allows them to use their own Appraisal Management Company and ensure that local appraisers are used, which is the most critical part of being a direct lender.
Some listing agents will not even accept an offer from somebody using a big bank or a mortgage broker, due to the high possibility of getting a bad appraiser. This is how bad the industry has gotten. For more on this appraisal issue, read any or all of the below:
The important thing to you as a consumer is that a direct lender with multiple sources still allows them to shop for the best rate for the consumer, but more importantly the direct lender will control the process from start to finish to deliver on time, efficiently, and with no hassles; which the industry is infamous for right now.
The reality is that in different eras there have been different structures of mortgage lending that have dominated. When I got in the mortgage business in 1986 mortgage bankers (i.e. direct lenders) were the best place to get a loan. Then in the early 1990s through much of the 1990s, big banks ruled the day, and they were the best source to get a loan from, for different reasons. Then in the boom market of the early to mid 2000’s, mortgage brokers took the largest percentage of market share of all lender types. Anybody could get a loan through, mortgage brokers were able to shop extensive sources, and the loans flowed easily. In 2008 all that changed, and the rules, compliance, appraisal changes, and all around complexity of the transaction have now dictated that mortgage bankers (i.e. direct lenders) are the best source for a loan.