Broker friendly discussion. Investor questions.

[Gerino Alejos]

Hi everyone, I am curious to know why some investors use loan brokers? or why they don't. What are some DO's and Don't's when dealing with a loan broker? what should your expectations be? 

Questions For brokers- what (broker friendly) banks do you prefer to work with, & why?  what do you expect from an Investor as far as collection of docs? what's the industry standard point fee*?  When do you determine to decrease your fee? If ever. 

[Chris Mason]

Originally posted by @Gerino Alejos:

Hi everyone, I am curious to know why some investors use loan brokers? or why they don't. What are some DO's and Don't's when dealing with a loan broker? what should your expectations be? 

Questions For brokers- what (broker friendly) banks do you prefer to work with, & why?  what do you expect from an Investor as far as collection of docs? what's the industry standard point fee*?  When do you determine to decrease your fee? If ever. 

 I've done both. I've been a loan officer at multiple retail direct lenders. And I'm on the wholesale side, brokering mortgages exclusively now, obviously I have a bias, I made that switch for a reason, less than 2 years ago. It would be wise to consider all biases of everyone who responds. :) As well as the fact that about 80% of consumers, and 60% of Realtors, don't know how to tell the difference between a retail direct lender / banker, and an independent mortgage broker.... "man my mortgage broker sucked!" -- and you later find out that the person's "mortgage broker" was a retail W-2 direct employee of Quicken, or Fairway Independent, or Guaranteed Rate, or loanDepot, etc.

I made the switch in no small part to be a rate whore. When I found out that a mortgage broker could send the loan to the very place I worked, and the consumer got BETTER pricing than I could offer as an employee of that very same firm, holy smokes, that just about blew my mind off. That wasn't always true, but when it became true... I wasn't long for that world. 

I switched to be a whore for rate. I'm really happy with having made that switch for a LOT of really good icing on the cake reasons that I didn't necessarily anticipate. 

The big apprehensions I had were mostly the FUD (fear, uncertainty, doubt) that my own middle management had implanted in my brain. To wit, what I was told, and the reality (please note that we play fast and loose on refis, on purchases we don't play these "eeeh maybe if you squint it can be approved" type games):

Can't talk to the underwriter, just have to do emails and the like. False. In the wholesale side, where they all know I can broker the loan anywhere else that I want, the underwriters end up being MORE available, and more congenial. They have to be, I haven't signed a "do not compete" clause, I'm no one's B-word and can do what I want. The entire power dynamic is shifted. 

No control over ops. Semi-true. You have a different type of control. When I was retail, I knew who the funding manager was, I knew who the doc drawer was, etc, so I knew what types of dumb stupid BS we would come up against, and how to navigate it. I no longer know that person, instead I know what dumb stupid BS each lender comes up with, and just don't send "stupid BS #166" type loans to places that have issues with "stupid BS #166." 

No control over underwriting. False. Before, I'd argue about the semantics and interpretation of a guideline. Sometimes I'd win, sometimes I'd lose. Mostly, I would lose. Now, it's super simple. "Hey Jessica, thank you for that email and the underwrite on the Smith file. I noticed condition 4, I don't really feel that's necessary. I could send this loan to [name a big competitor of Jessica's employer] and I know for a fact that they wouldn't require that, since that just came up a week ago, and they didn't. Are you SURE you want to require that? Please let me know by the end of the day, so I can pull the file and send it to [Jessica's employer's big competitor]" -- and, if I'm right, Jessica will cave. If I'm not right, then I'll lose, and that's one that I would have lost either way, so no biggie there.

No community, no team, etc. False. #BrokersAreBetter is the hashtag, AIME is the community. 

Middle man charging a fee. True with significant caveats. The retail middle management pyramid scheme person telling me that, well, they weren't free either. A big thing I did when I went from retail direct lending / mortgage banking, to wholesale brokering, was basically firing all those useless people. Middle management in mortgage is obsolete, a needless expense. A direct lender means you're paying a dozen or more middle men. An independent mortgage broker reduces that to 1-3 (& yup, you can cut that down to zero by getting all the licenses I have, and so on, which is about 3x as hard and 5x as expensive as getting your real estate agent license -- and if it's a choice between those two, becoming a Realtor will save you more money to boot as well).

No brand recognition. True! There is not a single person on this website who has ever heard of the broker shop where my license is now hung, but for reading my posts and seeing my signature block. But, really, I never had brand recognition anyways, I never hung my license anywhere that sponsored the super bowl, if you knew me it was as "Chris Mason," not as "the guy at ABC Home Loans." All I ever had was the relationships, that never changed, and didn't. 

It's a slower process. False. I used to beg for turntimes of under a week, calling in favors and stuff like that. Now, there's no more favors. If I send you a loan and it sits in your queue for longer than 3 days, that's probably the last time I'm ever sending you a loan. You aren't doing me any favors, I'm doing you a favor by sending you this business, so stop mucking about and wasting time, or that's the last business you will ever get out of me! And the lenders recognize that we (unlike their retail employee salespersons) can actually do that without any pain on our part (switching health insurance, switching your license over, setting up new direct deposit, bla bla bla bla bla), so they put our loans in line ahead of the loans of their own employees. 

In California, independent mortgage brokers are fiduciaries. Typically, our borrower paid fees are $0 (expect a "processing fee" of $400 to $1000 if you're in an area with smaller average loan amounts than Oakland or the Bay Area, FYI, as well as to be charged at-cost for running your credit just like you charge your tenants), we're paid by the bank for bringing business in the door, and if we send business to lender A who is paying us more than lender B b/c they have a higher rate, boom we just broke the law. Direct lenders and mortgage bankers are not fiduciaries, except when they lie and pretend to be a mortgage broker when they aren't (consumers don't know how to tell the difference, most Realtors don't either). A fiduciary is prohibited from putting their own economic interests ahead of yours, a mere salesman is allowed to do exactly that. The guy in that link got in hot water, not because he took a client for a ride (picked a higher rate option b/c it paid him more), but because he did so while specifically pretending to be a mortgage broker (impersonating a fiduciary). Had he not pretended to be a mortgage broker, his activity would have been lawful and allowed. This paragraph wasn't a big reason why I made the switch, I'd always acted in this way anyways, but it's certainly icing on the cake for that moral hazard to simply not even be an option on the dinner menu to begin with. 

I'll stop, that's already probably a giant wall of text, stuff that's been sitting on my mind for a while that I needed to get out, stuff that I should PROBABLY use to start a blog or something, but my marketing has always sucked (mortgage brokers, on average and not just myself, we all seem to REALLY suck at marketing type stuff, it's our collective biggest weakness, there are exceptions of course), so that probably will not happen. I'm happy to share any answers to specific questions you might have, but in general I'm about as happy as a pig in you-know-what, having made the switch. Good luck with whatever you decide!