If you’ve watched “It’s a Wonderful Life,” you’re familiar with the Bailey Building and Loan. As George Bailey explained his business model, “Tom, we take your money as a deposit and we then give it to Mr. Martini so he can build a house.”
The business model of savings and loans throughout the country is pretty much the same today. Banks take in deposits at a certain cost and they lend those deposits out in the form of different types of loans including mortgages. If their cost is ½% on deposits and a year ago they received 3% in revenue on the mortgages, somewhere between 3% and ½% was the profit.
A recent WSJ article (https://on.wsj.com/3suYjyb) discussed how interest rates across the board have gotten higher but banks in most cases are not paying higher on their deposits. Banks in many cases pay under half a percent to take in deposits but now the rates on their mortgages have moved from under 3% a year ago to in many cases near 7%.
Most lending institutions don’t have the structure of savings accounts. They sell their mortgages and therefore their profit is based on the difference between what they can sell the mortgages for and how much they charge the borrower. The Bailey Building and Loan has much more flexibility because they can control their costs which have barely risen while their revenues have jumped significantly. Imagine a shirt maker who pays $1 to make each shirt and then sells it for $5. What if all of a sudden he can sell each shirt for $10? Imagine further if his cost to make that shirt is still one $1. He will have much more profit.
Some shirt makers in this type of situation, as well as banks, might decide to be more flexible with their pricing in order to gain market share or to better serve their customers. While 30-year mortgage rates might be over 7% now, if a smaller bank can still make money at 5% they might do that to better serve their customers.
That is what is happening. There are a number of smaller banks or niche lenders who have a different cost structure, which gives them the opportunity to be more flexible with terms and rates. Do a survey! Go online and check the rates for 10 local banks. I bet at least one will be significantly less than the others. The question is: How does the typical customer find those banks?
Typically a borrower connects with a lender via a referral from either family, friends or their realtor. Prior experience is definitely a strong indicator of what to expect going forward. However, it shouldn’t be the only indicator. Banks change and people’s needs are different. Perhaps your father had a jumbo loan and the lender he used was much more aggressive for that type of loan but is not a good option for a smaller conforming loan, which might be what you’re looking for. Perhaps your friend locked in a year ago with a 30-year fixed rate and now an adjustable might make more sense for your needs due to higher rates. Your realtor might be focused on making sure the loan closes quickly while another lender who might take an extra two weeks could save you ½%. If you’re not in a rush it might be worth waiting two weeks to save on your costs for the next 30 years.
The point is, as a consumer, you have a responsibility to do the homework yourself to find the best product for you. You shouldn’t rely on others who likely don’t have the information necessary to make the right decision.
At GRA we are a mortgage bank, which means we work with many different lenders. Having a broad spectrum of banks to work with gives us the ability to have access to products that might best serve your needs. I’m a firm believer that no one bank is the right answer for everyone. I do have borrowers who inquire about loans and fortunately, in most cases, I can help them, though, in some cases they would be better served at another institution.
If you’re considering a purchase (or a refinance) call me. Let’s discuss your needs and consider the many lender options and find the right choice for you. Hopefully I’ll be the right fit but if not I’ll help you understand there are other options.
I believe that’s what George Bailey would have done .
David Siegel is a vice president of mortgage lending with Guaranteed Rate Affinity (GRA), a leading national retail mortgage lender. David has over 15 years of experience at both major banks and mortgage bankers and understands the guidelines of different lenders to help direct his customers to the best loan type for their needs. David will help you find the right choice for you. He is located at 16 Arcadian Avenue, 3rd Floor, Unit C-6, Paramus, NJ, 07652. Contact him via email [email protected] phone 201-725-9527.NMLS 277243 Guaranteed Rate Affinity NMLS 1598647 Equal Housing Lender.
For licensing, go to nmlsconsumeraccess.org, 16 Arcadian Avenue, 3rd Floor, Unit C-6, Paramus, NJ, 07652. Licensed by the NJ Dept. of Banking and Insurance. Licensed Mortgage Banker- N.Y.S. Banking Department.
By David Siegel