The other day I got a call from a man on behalf of his parents. They were- as he described them- ‘old school, off the boat’, which was evident when he asked them my questions and translated the answers to me from another language.
They had been turned down, first for a second (HELOC) mortgage and then for a refinance of their first mortgage, from one of the BIG (very big) ‘brick and mortar’ traditional- if that word even has meaning any more- banks. They didn’t understand how little old me and my little old company could get them a loan when ‘The Empire Strikes Back’ savings and loan could not.
As someone who has spent the last 20 years in mortgage banking, and having witnessed first hand- from the inside- the biggest bank failure in American history, it is hard for me not to grin and chuckle cynically when I encounter this mindset- which is not uncommon. The reverence people still have for these intuitions makes me think of the bank scenes from Mary Poppins- huge marble columns, dusty silence and old men meeting in wood and leather board rooms deciding whether or not to smile favorably upon a loan application. The decisions handed down are not based on altruistic largesse and awarded to those wearing clean clothes and exhibiting good manners. They are computer generated outcomes based on a very narrow set of criteria and very dependent on the ability and competence of the person inputting the data, who may be poorly trained and questionably compensated… in other words, the person mostly responsible for what may be your financial lifeline is probably at the very bottom of the corporate food chain.
And therein lies to answer to the question. Mortgage brokers have the ability to not only compete with the ‘big banks’ but in many cases outpace them terms of service, product selection, and even rate. Wholesale lenders, many of them huge corporate entities as well, market their products through brokers, and since we are footing the bill on rent, office expense, compensation and benefits, they can offer us these products at market- or even below market- rates, and pay us to sell these mortgages into the retail market place, so we do not have to pass any additional cost onto the borrowers. There are dozens of wholesale lenders competing for my business, each with different strengths and weaknesses, so I can match my borrower up with the lender that best suits them. Ironically in the complex world of what is known as the mortgage ‘secondary market’, it is not uncommon for one of the giants to purchase a mortgage portfolio containing mortgages they would not have lent on if they received the application directly. The wholesale lender, in conjunction with the mortgage broker, has the resources and expertise to evaluate and underwrite loans that- in many cases- the big banks do not, but once the loan is closed (and especially if it is performing) it becomes a marketable commodity. The result is that mortgage brokers have much more flexibility to address an ‘out-of-the-box’ situation than our giant competitors.
The old school parents? We are doing that loan, and David slays Goliath once again. Happy Hunting!