The choice is between using a mortgage broker and a banker. You figure that bankers might be a little safer, someone you know, while the mortgage broker is notorious for getting a lower rate, right? After all, doesn't it make sense to get interest rate quotes from a broker who has access to hundreds of lenders? Sure. But that's really a false choice. There is a group of mortgage bankers that can provide the same function as a mortgage broker yet still control the lending process. These bankers get their mortgage money from companies called Correspondent Lenders. And they may very well be the best of both worlds.

Mortgage brokers don't lend their own money; instead they find it for you. They're not more expensive than a banker; at least they shouldn't be, because brokers get loans at wholesale prices. After marking up the mortgage to a retail level, they make money on the difference. No different than any other wholesale/retail environment. Brokers have the advantage of shopping around for the best interest rate. Or maybe there's a loan program that only a few lenders have that the broker can offer.

Mortgage bankers don't have the luxury of shopping around each and every day for the best interest rate on the planet. Instead, they rely on their company to provide competitive interest rates for them to quote. No need to scour dozens of rates sheets; a banker's rates are printed up every day for the loan officers to use. Are rates higher with bankers than with brokers? They shouldn't be, or else they wouldn't be lenders very long. But in the real world, there are times when a lender really wants to "buy" the market and price their loans below everyone else. Brokers have the ability to shop, and shop they do.

There is a group that falls between a big banker and a mortgage broker. This new group is also a mortgage banker, because they make the lending decision, print their closing documents and fund the loan with their very own money or credit line. Once the loan is closed the loan is immediately "sold" to a Correspondent Lender, a lender that agrees in advance to buy an individual loan from the originating banker. Correspondent Lenders also price their loans at wholesale to these mortgage bankers to keep them competitive. The ability to control the loan process while at the same time being able to "shop" the mortgage just like a broker gives these lenders a competitive advantage.

Who are these lenders and how do you find them? Many times they're smaller, regional mortgage bankers and not a national mortgage company. It's hard to tell if a lending company is a banker or a broker by the name of their business. You won't be able to tell by looking at their business card. That is unless they tell you. It's possible to find this information by going to their website where their "About Us" information is posted. Or you may simply have to call them up and ask if they're a broker or if they're a Correspondent for another mortgage company.

Don't think that finding the best rate means either going to your bank or going to a mortgage broker ... there's an "in-between" that has the benefits of both. You can't be guaranteed the absolute best rate just by finding one of these lenders, but there are tons of 'em out there. You may be doing business with one now and not even know it. Don't be fooled into a "banker vs. broker" debate. There are other choices.

Published: August 6, 2004

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, a veteran Mortgage Banker, successful Real Estate Consultant and author of Your Guide to VA Loans, Mortgages 101: Quick Answers to Over 250 Critical Questions About Your Home Loan, Who Says You Can't Buy a Home!, and Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You, is a former columnist and Contributing Editor with San Diego-based Mortgage Originator Magazine. Reed is President of CD Reed Mortgage Bankers, Austin, TX and is a Past President of the Austin Mortgage Bankers Association.