Banker vs Broker

Although there are wide variations in the roles performed by the numerous entities involved in mortgage lending transactions, there are several fundamental distinctions that can be drawn between the functions of the mortgage banker and the mortgage broker. Although entities vary greatly in terms of amounts and types of services they perform, it is possible to provide generalized descriptions of their functions in the mortgage loan transaction.

The core function of the mortgage banker is to supply the funds necessary for the making of a mortgage loan. As the "lender" of the moneys in the transaction, the central role of the mortgage banker entails the performance of all the necessary underwriting analysis on a loan transaction and the actual funding to close a loan, using either its own funds or funds acquired from warehouse lines of credit. Generally, mortgage lenders do not make loans in order to retain the asset as an investment. Rather, a mortgage lender will usually sell its residential mortgage loans immediately in the "secondary market."

Mortgage lenders can, and do, engage in "retail loan origination," which is the part of the process that entails everything from advertising and solicitation of the loan product to the taking of the loan application and performing some or all of the processing of the application information. When mortgage lenders engage in the "retail" portion of the loan business, they deal directly with the potential borrowers, and thus perform such "origination" functions as interviewing and counseling borrowers, gathering personal information and taking the necessary steps to process, underwrite, close and fund the loan. The "retailing" of loans requires not only the time of lender personnel, but also the bearing of the cost of real estate ownership or rental, i.e., the "bricks and mortar," as well as the expense of payroll and benefits, business machines, supplies, insurance and other costs necessary to maintain a retail branch.

The mortgage broker, in turn, specializes only in the loan "origination" portion of the transaction. By doing business with a mortgage broker, the lender will save on all these operating costs. In addition to sparing the lender the "brick and mortar" and other retail office expenses, brokers will perform many of the services required to originate loans that Lender would otherwise have to perform. Mortgage brokers also allow a lender to broaden its market and reach customers who, because of geography, or a lack of contact or knowledge, might otherwise have never accessed the lender's products, thereby increasing competition.

As such, the broker will take a consumer's application, will counsel the applicant and process the application, and will then ship the loan package to the lender for proper underwriting, and eventually, closing of the loan. In some instances, the lender may actually close the loan in the broker's name with the lender's funds ("table funding").

It is also worth noting that the role of the mortgage broker vis-à-vis the consumer and vis-à-vis the mortgage lender can vary greatly. In the vast majority of cases, however, the broker will have developed relationships with various lenders, and will serve as the "retailer" of the lenders' loan products to consumers. In that role, the broker serves as an independent contractor with respect to both the consumer and the lender. In such instances, the broker/lender relationship is non-exclusive, and the broker is under no obligation whatsoever to submit any borrower's loan application to any particular lender for approval and funding. On the contrary, brokers are free to choose any one of several wholesale lenders' products for a particular borrower.

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