In the novel “The Alchemist,” the protagonist, Santiago, has a dream of a treasure that’s buried somewhere in Egypt. He leaves his home in Andalusia to find the treasure and experiences a number of challenges in its pursuit. As many of you may know, I’ve been on a bit of a journey as I’ve worked at a number of different lending institutions including both banks and non-bank lenders. The treasure I’ve been seeking is the perfect bank that can satisfy the needs of any borrower and provide operational support to help me serve those customers. Too often I’ve found I either had to decline a loan or knew they could do better elsewhere. Like Santiago, I was willing to make changes in my journey as I felt I had found a better solution in pursuit of the perfect bank.
My travels have taught me one very important lesson. There is no perfect bank. There is no bank that is the right solution for everyone. By the very nature of the banking business, different lenders cater to different customers. Depository institutions (banks like Citi, Chase, Citizens) are very different from non-bank lending institutions (non bank lenders like Quicken, Guaranteed Rate, Loandepot) and consequently one or the other will likely be a better fit for your particular situation. For example, depository institutions pay for their deposits and then earn income from those deposits when they lend them out. They have more control over their pricing because they can control their costs. Furthermore, they have other lines of more profitable business like credit cards, personal loans and business accounts. Mortgages could even be loss leaders in order to bring in these relationships. These factors allow banks to be more competitive in pricing if they wish. If you do research, you are likely to find that the large banks have better pricing, at least right now, in higher loan amounts and adjustable-rate mortgages.
Non-bank lenders will tell you that they work with many banks and if you can get a great rate at Citibank or Chase they also have access to those banks. Years ago when I was recruited by a non-bank lender, that’s exactly what they told me. The recruiter claimed that anything I could get at Citibank, which is where I was working, they could offer. The reality is these are very different products and the rate and guidelines you would get from a Citibank lending officer are very different from the rate and guidelines available from a non-bank that is working with Citi. In fact, it’s not unusual for the rate to be significantly less when working directly with the bank. The relationship discount that banks offer their customers is not available when working with the non-bank. Yes, they have relationships with 20 or 30 different lenders. However, if their best rate is still half a point worse than what you can get directly with the bank, why would you want to pay the higher rate?
I’ve also learned that there are borrowers who are not served well by the large banks. There are niche products that smaller banks or other lending institutions are willing to offer that larger banks are not. Reverse mortgages, alternative income loans and other special situations would likely be better addressed at a non-bank.
What I have learned in my travels is that my customer base is best served from an actual bank. The guidelines and rates at a large bank meet the needs of my customers who are often Jumbo, Arms, and interest-only customers. I also work with many physicians who need access to a strong physician program.
However, my travels have helped me understand that I will not be able to provide a competitive mortgage product to every person who approaches me. No bank can. However I can provide advice to every person, and if I don’t have a competitive product to offer, I can guide them to someone who can. I once asked a friend who works in a non-bank how he can rationalize charging a much higher rate to his customer. His answer was that he sells service, not rate. I consider my service to include many things. Obviously getting to the closing is the most important factor but I think a competitive rate is also important. You may have to make that monthly payment for a long time and in many cases you can get great service and a lower rate. If you are an easier loan, why should you pay a premium because you are serviced by a company that caters to more complicated loans? I believe as part of my service, I should help you find the best rate possible. Hopefully that is from my bank, but if I know you can get a better product elsewhere, I will make sure you know. Even if it means losing a possible customer, this is how I wish to operate my business.
Like Santiago, my search continues as I realize my last employer was not the right fit for me or my customers. I’ve left a non-bank, and I’ll be joining Citizens Bank next week. I compiled a report that highlights the differences between the different types of lenders and I’d be happy to send it to you. Determine if you’re best served by a bank or a non-bank. If possible, find a loan officer who you feel will guide you in regards to your best interests even if it means he or she won’t be doing the loan.
I would like to be that person for you.
David has worked with a number of lending institutions as a mortgage loan officer for nearly 15 years. His experience has provided an insight into the inner workings of the industry and he shares this expertise with his mortgage customers and readers who he hopes will use his tools to find the best mortgage to fit their needs. If you would like a copy of his “Find the Right Mortgage Lender” report, email him at [email protected].
