Loan officers??? What for?

Question

Hey! Is it best to work with a loan officer??

What are the pros and cons?

What are my other options?

Patrick Britton · Answer

@Brittany Villamil thought i should add:

In terms of doing things that would help the loan officer and/or your application it would behoove you to have the following documents readily available:

• W-2 for the past two years
• tax returns for the past two years
• bank statements for the past two months
• pay stubs for the last two pay periods

But a good loan officer worth his or her weight in gold will be able to handle everything for you flawlessly.

@James Wise Where you get the idea that bank financing is the cheapest?  All banks, credit unions, mortgage brokers and bankers, etc. will all get some sort of origination fee.  This fee is stated clearly on the 2010 itemization along with the final HUD, as well as a few other places in between.  If someone is not charging an origination fee, believe me they are making up for it somewhere else, most likely they've thrown it into the rate.

And although my opinion is heavily biased in favor of mortgage brokers and mortgage bankers, trust me when I say that going with the bank is usually not the best move for the following reasons:

• bank and credit union loan officers are not licensed, only registered with the state.  This means that they were competent enough to fill out a form and have their branch manager submit it.  Licensed loan officers must go through an extensive amount of education prior to applying for a license.  Their criminal history is checked by the FBI and their creditors pulled to ensure they are financially stable.
• Loan officers at a bank are salary based which means quite frankly, that they get paid whether you get your loan or not.  They have no financial incentive whatsoever to push things through.  Licensed loan officers working as a mortgage broker or banker are paid on commission...They only get paid if you get your loan.  This means they work their butts off to make sure things happen.
• another major issue I have with your standard bank and bank-based loan officer is that they typically offer the lowest rate but fail to mention the inverse relationship between interest rates and cash to close.  For example, someone showed me that Bank of America could offer him 3.875% on a 30 year conventional fixed.  He asked if I could match that rate, to which I replied, "absolutely, but what sort of cash to close will be required?"  He had not a clue so together we went through the GFE and I showed him where they would need him to have about $25,000 cash in order to close.  He was aghast at this since he only had about half that amount.  I also pointed out that this bank failed to offer him loan options in which private mortgage insurance was paid for, which would allow for a much lower monthly payment.  I then showed him couple of options and he chose one that allowed for much less cash to close and in fact, at a lower monthly payment, even though the rate was a little bit higher.
• Lastly, I've seen instances where bank loan officers didn't even know how to eliminate private mortgage insurance through a lender or seller credit.  This means that their clients were paying several hundred dollars more per month than what they could, but they were never given the information or the choice.

In short, going with a loan officer is no more expensive than with a conventional bank.  And there is a much better chance that you are going to deal with a true professional if you see a mortgage broker.  But just like there are good and bad real estate agents, lawyers, investment advisors, doctors, etc., there are good and bad mortgage brokers.  So when you do your "shopping for a mortgage" you should really be "interviewing" for your perfect loan officer.

Hope this helps

Chris Kennedy · Answer

@Brittany Villamil

There are typically costs involved in obtaining a loan, regardless of who you work with - a big bank with an in house loan officer, a mortgage broker, a private money lender, etc.  Most folks in the business of lending money will charge some sort of origination fee. This is how loan officers and mortgage brokers earn their living.

Having said that, in my experience, the big banks offering the more standard loans cost less up front than your average private lender or commercial lender, and as mentioned above you generally get much better loan terms. A lot of the loan officers in these institutions are on a low base salary and make bonuses when they close loans. Some of them are straight commission, just like us real estate brokers!

The good thing about this is that they don't get paid until they close your loan, which is what you want. If you're working with a loan officer or mortgage broker on any type of commission plan I recommend you find out how long they have been in that position. If they've survived a few years then they will probably do a good job for you and will be quick to tell you if you're wasting your time trying to get financing with them. If they are new in the business be very wary - they may not have the experience necessary to get your loan closed, can waste a lot of your time, and can even leave you in the position of losing a deal or defaulting on a contract if they can't meeting the financing contingency timeline in your contract.

My suggestion is to visit lots of banks in your area and speak face to face with as many loan officers as you can until you find one who really knows his/her stuff.

On a last note, remember it goes both ways - make sure you are prepared when you do submit the loan application. Being organized and professional in your loan presentation and application docs will take you a long way to a smooth and successful closing.

Good luck!

Jerry Padilla · Answer

@Brittany Villamil

I like the responses of @James Wise and @Dell Schlabach

In my opinion, going with a loan officer that is knowledgable about investors and the financing options of investors, and how to read tax returns can make or break you getting approved or not approved.

Most likely your rates are going to be best with s loan officer and terms can go out 30 years which is typically unheard of with s private investor or hard money lender. Their interest rates are typically higher as well.

A lender or loan officer that is able to follow just Fannie Mae guidelines - which is investor friendly (Freddie Mac, not as much) is your best option for getting approved. Freddie Mac you need a two year history and Fannie Mae you are able to use potential income or a lease if you already own, if the property is not on your tax returns.

Bill Gulley · Answer

Just clearing up some stuff.

A "loan officer" is in bank or regulated institutional depositories, the "officer" part is from the appointment as a corporate appointed officer having authority to bind the institution in making a loan, usually these folks are Junior V.P.s or higher.

Loan officers can certainly have commissions and they will have production requirements just like any other institution push financial products, if the don't produce their base salary might be effected or they can be shown the door.

"Loan officers" usually have "loan limit authority" they may be able to approve a loan up to a certain limit, above their limit they are required to obtain higher approval. Not all officers may be given loan authority, I'd say most doing secondary market loans won't have approving authority they are more of an originator than an underwriter. Those doing portfolio loans will have greater authority, from that you have types of loans as well, personal loans, car or secured loans, commercial loans secured and unsecured.

Their pay is also determined by the performance of their loans, non-performing loans can hurt their ratios, so they have an incentive to write good loans.

Dodd-Frank hit consumer residential loan originators or loan officers with disclosure requirements, mostly to mortgage brokers or originators in non-depository entities than to banks. Banks may and do pay for performance, production and loan quality but not on a per loan originated basis as customary in a mortgage brokerage operation.

I'm hearing some mortgage broker spin up there Patrick, LOL.

Banks selling mortgage product may have the same product a mortgage broker has, usually do, these loans go to mortgage wholesalers, some wholesalers may fund the loan for a broker or a bank. An advantage of a bank is that they may fund the loan at settlement and if they screwed up, they can hold the loan until the matter is cured. A broker who has the loan funded really can't screw up as the wholesaler approves the loan, not the broker, so with a broker you may have more due diligence, a bit more underwriting than you might have at a bank doing the initial funding.

Mortgage brokerages generally are not servicing loans they originate, servicing goes with the note sold or the note may be sold with servicing retained by the institution who originated the loan. This is where people get the idea the bank made a 30 year loan and they are collecting the payments, what they did was retained servicing for the servicing premiums and sold the note to avoid the interest rate risk over long terms.

Loan officers may have their hands tied by the institution's loan policy, each bank has a written loan policy that must be followed as it is the direction to be followed set by the board of directors. A loan officer in a bank may or may not be able to negotiate an origination fee or a processing fee or junk fees as we call them. My offices had carpet, I'd tell my customers that I could beat the rate or points because I didn't have marble floors to pay for! ;)

A mortgage brokerage operation is usually more nimble, easier to negotiate with especially if the owner-broker is there, they can originate at any price point they want to so long as they are not exceeding amounts allowed.

As a mortgage broker, I had banks that basically sent loans to me to originate, I could do so cheaper, quicker than their competitors and I was not in competition with them for deposits or other banking services. A rather odd presentation to their larger loan customers saying I was originating for them, placing the loan directly with the mortgage wholesaler and saving them money as a result of their great banking relationship. (LOL)

Most brokerage operations don't have private money available, I did, but most don't. If a broker can't place your loan, you're done. If a bank can't place your loan in the secondary market, they can fall back and offer a portfolio loan. Another advantage of going to a bank.

As to education or loan officers and mortgage brokers, all in all, I'd say the loan officers are ahead, I don't know of a bank that will hire a loan officer who doesn't have a 4 year degree, usually banking related, banking, finance, accounting or economics. You can find a mortgage broker who was a fry cook at a drive-in last year or a car sales man and to obtain an originators license they only take a 20 hour course to be a RMLO! Now, I was at a credit union with a loan officer (with someone else) and that guy didn't even know what compensating factors were or how to figure debt to income! A real dud and his name tag said "Loan Officer".

Investors or borrowers should know what loan products are available in their area, you'll usually have the common secondary market menu to choose from and banks as well as brokers will most likely have the same products. Knowing the portfolio loans or loans kept in house with a lender needs to be explored as well.

You need to know the type of loan that is appropriate for what you intend to do, you don't want a 30 year fixed rate for some fix and flip, that is short term money, on the commercial side. Banks do construction loans but it's more as a service to get the end loan later on, if you need transactional funding, a bank isn't going to be the place to ask.

First question: What is the loan for? Second question: How long do you need the money?

That will point you to the type of loan needed and most likely the source for funding it. :)

Brittany Villamil · Answer

@James Wise Thank you! I was speaking with a loan officer at Security National Mortgage Company..I'm feeling like maybe I should put that on hold and go to a few banks.

@Chris Kennedy  Thank you for all the details! Any advice on how I can prep before submitting any loan applications? Ex: Any paperwork, copies of anything? Just trying to get every little detail I can! Appreciate it.

Dell Schlabach · Answer

Depends, What are you trying to accomplish?

Pros, They have money to lend

Cons, You, or your project may not meet their requirements.

Other options, Private Money, Hard Money, Owner Finance, depends what you are trying to do.

Brittany Villamil · Answer

@Patrick Britton

Wow! Thank you so much for that information. Very very thorough and detailed....I will take that all into consideration!

Brittany Villamil · Answer

@Mike Hurney Very interesting assumption.

Thank you @Elizabeth  Colegrove @Jerry Padilla and @John Santero

Very helpful. I appreciate your time.

Mike Hurney · Answer

@Jerry Padilla She's on BP, she expects everything for Free and to be done from her keyboard;-)

Loan officers??? What for?

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