Mortgage lenders: a very tricky business

2007-03-08 10:33:40

( Financial )



Most of the major mortgage lenders today are thrift institutions, commercial banks, and mortgage bankers or brokers. Another could be credit unions, which also makes mortgage loans available to their members.

Commercial banks provide short-term financing during the construction process for people who are remodeling or building a home. Then after the home is completed, the homeowner would then obtain permanent financing in the form of a standard mortgage loan, and would use the proceeds from it to repay the construction loan.

There is another way to obtain a mortgage loan and that is through a mortgage broker or mortgage banker, who would implore for you a mortgage lender. They are the ones to request for you borrowers and lenders of loan.

Mortgage bankers usually use their own money to initially fund mortgages then later on they would resell. Mortgage brokers on the other hand, takes loan applications and then seeks mortgage lenders willing to grant the mortgage loans under the desired terms. Mortgage bankers transact mostly with government loans and insurances. Most mortgage brokers also have an ongoing relationship with different mortgage lenders, giving them an upper hand in finding a loan even if you actually do not qualify at a thrift institution or commercial bank. They also can often simplify the financing process by negotiating more favorable terms, and reducing the amount of time to close the loan. Mortgage brokers earn their income from origination fees and commissions paid by the lender. The borrower usually must pay application, processing, and documentation preparation fees to the mortgage lender at closing.

Most mortgage brokers may not tell you about direct mortgage lenders as these direct mortgage lenders often do not pay the brokers commission. These lenders can offer you very competitive interest rates. This is because they have very low overheads compared to the high street lenders.

There is also what we call subprime mortgage lenders who tends to have a relatively lower loan balances relative to conforming, agency pools. Payments on subprime mortgages are also less sensitive to interest rate swings, and therefore present superior convexity compared to agency mortgages.

In the end though, you are ultimately the one who are to choose the best mortgage lenders. You may want to prefer to check out and choose a mortgage on your own or with the assistance of your realtor. They may be very knowledgeable about different mortgage lenders but is in actuality legally prohibited from collecting fees or kickbacks for helping to arrange financing so you should really be very careful.


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