Why use a mortgage broker?

There is one thing that truly sets brokers apart from the banks/direct lenders: the ability to work with wholesale lenders. These types of lenders do not have retail branches like Chase and Wells Fargo. They only work with brokers and correspondent lenders. By not participating in the retail side of the business, these wholesale lenders can offer far better rates than a big company with a ton of overhead. It is easy to feel a false sense of security from a large institution like Bank of America. They spend millions of dollars on advertising to make us think this. Wholesale lenders don't do this, and the majority of them are privately held companies who do not have a legal obligation to increase shareholder's value. A place like Countrywide has to make money to keep itself going. The funny thing is that these giant banks offer brokers and correspondent lenders wholesale rates. While you may go into Wells Fargo to apply for a mortgage at a retail branch, you might have been able to go to a broker and receive a wholesale rate on the same product.
When you ask a bank employee "why should I get my loan with you?", one of the main lines you get is "It's because I am on salary and I don't get paid on commission." Many fall for this hook, line, and sinker and ask no more questions. These employees have quotas, and if they want to keep their jobs, they better be bringing in money. Yes, they get bonuses, they don't refer to it as a commission, but it is. Also, don't be fooled by them saying "I can remove that fee for you," and "don't worry about the application fee, I can remove that." Those fees never should have been on there in the first place. Removing a "garbage fee" for someone is like asking them to see their wallet and saying, "hey, look what I found, it's your wallet." It's a poor tactic of giving a false impression that they are actually saving you money.
So what do you have to watch out for when working with a direct lender?
Lenders can take advantage of you more easily without you knowing. You better be dealing with someone that you trust. This is possible because lenders do not have to disclose what they are making on the "back end", brokers do. When dealing with a broker they have to disclose at some point in time how much they are really making, they should be up front before the process starts but inevitably it most often occurs when docs are being signed. Lenders on the other hand do not need to disclose anything. If there is a YSP (Yield Spread Premium) of 2 pts. and an SRP (Service Release Premium) of 1.5 pts. you'd never know it. The YSP is the altering of either your interest rate or margin and the SRP has to do with the packaging and selling of your loan in the secondary market. They should pass the savings onto the client, but their loan officers are most likely paid on a tiered scale. The more they make the company the more they get paid. Also, a lot of these big lenders are publicly held companies that have a legal obligation to increase shareholder's value. An inherent flaw already built into their business model. They are obligated to the shareholders not the borrower.

Why use a mortgage broker?

There is one thing that truly sets brokers apart from the banks/direct lenders: the ability to work with wholesale lenders. These types of lenders do not have retail branches like Chase and Wells Fargo. They only work with brokers and correspondent lenders. By not participating in the retail side of the business, these wholesale lenders can offer far better rates than a big company with a ton of overhead. It is easy to feel a false sense of security from a large institution like Bank of America. They spend millions of dollars on advertising to make us think this. Wholesale lenders don't do this, and the majority of them are privately held companies who do not have a legal obligation to increase shareholder's value. A place like Countrywide has to make money to keep itself going. The funny thing is that these giant banks offer brokers and correspondent lenders wholesale rates. While you may go into Wells Fargo to apply for a mortgage at a retail branch, you might have been able to go to a broker and receive a wholesale rate on the same product.
When you ask a bank employee "why should I get my loan with you?", one of the main lines you get is "It's because I am on salary and I don't get paid on commission." Many fall for this hook, line, and sinker and ask no more questions. These employees have quotas, and if they want to keep their jobs, they better be bringing in money. Yes, they get bonuses, they don't refer to it as a commission, but it is. Also, don't be fooled by them saying "I can remove that fee for you," and "don't worry about the application fee, I can remove that." Those fees never should have been on there in the first place. Removing a "garbage fee" for someone is like asking them to see their wallet and saying, "hey, look what I found, it's your wallet." It's a poor tactic of giving a false impression that they are actually saving you money.
  So what do you have to watch out for when working with a direct lender?
Lenders can take advantage of you more easily without you knowing. You better be dealing with someone that you trust. This is possible because lenders do not have to disclose what they are making on the "back end", brokers do. When dealing with a broker they have to disclose at some point in time how much they are really making, they should be up front before the process starts but inevitably it most often occurs when docs are being signed. Lenders on the other hand do not need to disclose anything. If there is a YSP (Yield Spread Premium) of 2 pts. and an SRP (Service Release Premium) of 1.5 pts. you'd never know it. The YSP is the altering of either your interest rate or margin and the SRP has to do with the packaging and selling of your loan in the secondary market. They should pass the savings onto the client, but their loan officers are most likely paid on a tiered scale. The more they make the company the more they get paid. Also, a lot of these big lenders are publicly held companies that have a legal obligation to increase shareholder's value. An inherent flaw already built into their business model. They are obligated to the shareholders not the borrower.