May 29, 2024
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May 29, 2024
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Linking Northern and Central NJ, Bronx, Manhattan, Westchester and CT

There are a couple of things I have wanted to get off my chest for a while.

Over the years, I have read, seen and heard a lot of advertising and marketing nonsense put out by direct lenders and mortgage bankers. I would not necessarily hold the company itself responsible, but the untruths typically are spread by a loan officer trying to get a deal in their direction. The government mandates that there be truth in advertising and truth in lending because the goal is to protect the consumer who, if not in the mortgage business, relies on what they read, which may only be the tip of the iceberg. Keep in mind that many of the changes in the law were not necessarily to the advantage of the consumer simply because the government powers have no idea about the practical aspects of how the mortgage industry works. Let me dispel some of the myths out there:

Myth 1: I see some mortgage companies advertising guaranteed appraised values. No one can guarantee appraised values, for two reasons: First, the law is that you are not allowed to guarantee appraised values, and practically speaking, no matter what anybody says, you won’t know the value until the appraiser comes back with their report. Zillow values, “Zestimates,” are not what lenders use. Everybody uses AMCs (appraisal management companies), and the order goes through them and then they job out the order. This system was specifically set up to prevent collusion and the ability to influence a value. Secondly, there are now at least two ways, depending on the mortgage program, that appraisals are done. Values based on comparable properties recently sold, and investment property value typically using rental comps, which may not necessarily have the same value as an owner-occupied property. That’s not to say that we can’t have relationships with good AMCs, but in general it’s a level playing field when ordering appraisals.

Myth 2: Aside from government Dodd-Frank laws, religious law (Halacha) also dictates truth in advertising. On occasion I listen to podcasts, and I have heard some misleading information, for instance, that mortgage brokers add extra points and bankers don’t, which is totally bogus. Let me also add that we are correspondent mortgage bankers in New Jersey and so we know both ends and choose to broker our loans for many reasons.

Here’s the deal: Mortgage bankers do not have to disclose what they make, by banking law, because, theoretically, they don’t know what they’re really making until they sell off the loan. What that means is the mortgage banker may want to make as much as they can on the rate spread, and you may be in the dark until you close, and if you don’t lock in right away you might wind up with a very big surprise. Mortgage brokers have a set fee with their wholesale lenders, and so when they lock your rate, they’re not making any more or less on your loan and are not incentivized to upsell rates. In addition, they are only allowed to get paid by either the lender or by a borrower, but not both parties, which may not be the case with a mortgage banker, or direct lender. Most of the time mortgage brokers do not ask for rate-lock fees or commitment fees upfront, but mortgage bankers may ask for fees upfront and lock you in so that you can’t shift to another lender without losing money.

Myth 3: A “direct lender” may have latitude on speed sometimes because they can draw the funds from a warehouse line of credit, but the tools used to underwrite are pretty much the same. It comes down to efficiency of the organization on gathering the financial information and making sure the application is accurate. There are automated underwriting engines which mortgage brokers and mortgage bankers have access to and rely on, so if you input an accurate application you’ll know if you’ll be approved with pretty good accuracy. When mortgage bankers advertise that they underwrite the loan directly or that they are a direct lender, it’s pretty much irrelevant because the automated underwriting findings are based on the same algorithms available to mortgage bankers and mortgage brokers, so that any wholesale lender will accept those findings—and that levels the playing field right there. So don’t be misled by the direct lender marketing label because that may not necessarily be to your advantage. In addition, many mortgage bankers broker out the loan as well depending on the product.

Use this information to your advantage, and as Sy Syms used to say, “An educated consumer is our best customer.”


Carl Guzman, NMLS# 65291, CPA, is the founder and president of Greenback Capital Mortgage Corp. and www.Mortgagegenius.com. He is a real estate mortgage banker and business financing expert with over 33 years’ experience. He currently has 214 5-star reviews on Zillow. Carl and his team will help you get the best mortgage financing for your situation and his advice will save you thousands. www.greenbackcapital.com [email protected]

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