My mortgage refinance process is continuing. Here’s what happened in week 2 with a brief recap of week 1.
Week 1. Found a good rate at National Mortgage Alliance (NMA). Received quote on GFE. Filled out application online.
Monday 4/27/2009. Rate lock confirmed. 4.5% for 15-year fixed. Lender credit covers all closing cost. Escrow waiver is optional for a fee.
Tuesday 4/28/2009. Received the disclosure document package through a secure link online. Signed all the disclosures. Faxed back total 45 pages including these supporting documents:
- copy of driver’s license
- last year’s W-2
- 2 most recent pay stubs
- bank statement
- poof of homeowner’s insurance
Friday 5/1/2009. Loan advisor confirmed all the disclosure documents were properly executed.
My previous refinances were done through a mortgage broker. This time I’m doing it through a division of a bank. That makes it a mortgage lender, not a mortgage broker. What’s the difference between working with a mortgage broker versus working with a mortgage lender? None I can tell so far.
A mortgage broker arranges loans from other banks. They do not set lending standards or fund the loans. They are just a middleman introducing the borrower to a lender. A mortgage broker gets paid from making that introduction. I dug up the paperwork from my last no cost refi in 2008. Here’s how much the broker got paid:
|Lender paid to Broker||$5,434|
|Broker paid for|
The broker earned $3,371 from doing my refinance. That’s pretty good for taking some phone calls and forwarding some paperwork, isn’t it?
Was I duped? Could I have gone to the bank directly and saved $3,371?
Unfortunately, no. A mortgage broker sells loans like Amazon sells iPods. Apple, which makes iPods, also sells iPods directly to consumers in its own online store and retail stores. But the price from Apple’s online and retail stores is not any lower than the price at Amazon. Amazon’s price is actually a little less. Amazon buys at wholesale price from Apple and then sells at retail price to consumers. Apple’s own online store and retail stores also sells at retail price.
Going through a mortgage broker in itself does NOT necessarily mean the rate and fees will be higher than what one gets from going to a bank directly. For the bank, mortgage brokers are just a sales channel. The bank’s own web site and retail branches are also sales channels.
Of course not all brokers are created equal. There could be a broker who is satisfied with only $1,500 revenue and is willing to pass on to me more of the money he or she gets from the lender. There could be another broker who wants to keep the entire $5,434 to him- or herself.
Therefore you still have to know what the prevailing retail rate and fees are whether you shop for a mortgage. Whoever delivers the lowest rate and fees wins, regardless whether they are a mortgage broker or a mortgage lender. By shopping for a no cost refi, I eliminate one variable. I only look at the rate. As long as the rate is the best I can get elsewhere, I don’t mind letting the broker earn their fee. The broker lost out this time because he couldn’t match NMA’s rate.