As you can probably tell by the title, I’ve set myself up for some negative feedback from certain members of the mortgage community. It’s okay, I have thick skin and can handle it. Remember though, before you go filling up my comment section, that I used to be a mortgage broker. I wasn’t a particularly good one, but I did hold my license for 3 years.
Last week, the fine cougar and her son (that’s Boomer and Echo) wrote a simple little post titled 4 reasons not to use a mortgage broker. For those of you who can’t use a mouse well enough to click through, let me summarize Echo’s reasons:
1. They push 5 year fixed rates
2. He has a good relationship with his bank
3. Mortgage brokers are sleazy like used car salesmen
4. He figured out the best mortgage on his own, since he’s not dumb
Now, as a former mortgage broker, I agree with all 4 of these reasons. They do push 5 year fixed rates, not because the commission is more, but because that’s what most people want. And, as I said in my look at broker vs. banker months ago, dealing with your existing bank can be easier than dealing with a broker, since the bank already has so much of your information on file.
Brokers are quick to point out that only they know the way around things like payout penalties, portability and interest rate differentials. And they’re right, most people can’t accurately explain the terms. But, if you’re buying a house with a 15 year timeline, who cares about any of that stuff? Most people don’t have any extra cash kicking around to make extra payments anyway. If someone know’s they’ll never use their prepayment privileges, then I bet they don’t give a flying crap about them.
Most brokers will never admit this, but most mortgages are almost exactly the same. Most come with the same prepayment privileges and the same options to transfer the mortgage to a new property. There are subtle differences, but that’s it. And, since most brokers only send their business to a handful of lenders anyway (because of volume bonuses), it kind of renders the whole lots of choice argument useless.
The point of all this is that, essentially, for most of the population, getting a mortgage boils down to getting the best rate. And if that’s the case, homeowners who actually have a brain and an internet connection can do a lot of the legwork themselves, rendering a mortgage broker somewhat useless.
Yes, they have a role in educating the consumer. But, much to their chagrin, that role can easily be filled by the person in charge of mortgages down at your local bank. Knowledge of the terms involved isn’t reserved to brokers. I’ve had mortgages (yes, that’s a plural) arranged by my local credit union, and all that stuff was explained to me.
Brokers will always fill a niche in the market. Certain people won’t be able to qualify at their bank, for whatever reason. Certain specialized lenders focus on certain types of borrowers, and using the broker channel is a terrific way for the two to meet up. Other borrowers simply won’t get competitive offers from their bank, or their bank won’t be entirely interested in their mortgage business. Mortgage brokers thrive on these types of clients. I used to get a steady stream of clients that banks would send to me, because they had bruised credit. Unfortunately for all of us, it was 2008, so nobody could get any money from anybody.
Am I saying that you should avoid mortgage brokers like you should avoid that dirty chick who’s slept with every dude in town? Hardly. If you find a good one, they’re a great option to use for getting financing. They can make the whole financing process painless with their experience. They can make potential headaches go away by knowing them in advance. Their experience makes them invaluable.
But, I could type that very same paragraph about a good loans officer at the bank. The key to being good at mortgages is the key to being good at any other business- experience. So, naturally, just about every single pro-broker argument trotted out is some sort of variation of the theme. Brokers know the market. Brokers know rate, because they watch the bond market everyday. (Ha, what a lie that one is. Most brokers know squat about the bond market.) Brokers know the terms, because they deal with mortgages all the time. You should deal with a broker because they know more than the loans officer at your local bank branch.
And that’s why they get so damn excited when somebody questions their position of intellectual authority. Because that’s all they have. All that other stuff about why you should use a broker? It’s not so important. If you’re able to do the legwork yourself (like Echo did) then using the services of someone who knows all that stuff isn’t really necessary.
But, if people stop using brokers, then they’ll have more time to argue in comment sections, like mine. So I’d like to therefore throw my Financial Uproar thumbs up to using mortgage brokers. Maybe that’ll keep them busy enough to not type out the same old arguments in my comments.