Some people can find it a bit taxing to understand what the differences are between a mortgage broker and a mortgage banker.  Normally, consumers are drawn to the provider they are most accustomed to working with.  One might think that the decision should be based on the mortgage provider or providers that offer the best rate or the lowest fees, but more often than not it really just comes down to the fact that people are genuinely more comfortable working with either their family broker or their local bank.  Regardless of which type of mortgage provider you ultimately elect as the one to arrange your residential mortgage, by understanding their differences, you can determine which type of provider will work best for you.

For the most part, a mortgage broker and a mortgage banker will have numerous things in common.  For example, both entities provide mortgage products to the public.  Also, they use similar characteristics in the types of products they offer and can each be competitive in their own way.  So, as we begin to decipher the differences between these two, it is important that we consider that both mortgage providers have access to the same products and rely upon the same credit criterion when distinguishing whether or not a borrower is qualified.

First, let’s examine all of the factors and aspects of mortgage bankers.  Mortgage bankers work directly for the bank that provides the mortgage.  They are considered retail branch outlets and will represent just one bank—their own.  It is not uncommon for a mortgage banker to be set up in the same location of the bank where the patrons go to apply for and establish their checking and savings accounts, make deposits, apply for auto loans or make a withdrawal.  In essence, the mortgage banker will serve as the bank’s mortgage representative and will have the bank’s best interest in mind as when offering mortgage-related products to the public.  As an employee of the bank, the mortgage banker will only have access to the products that are currently offered through the bank.  So, if your qualifying criterion does not fall within the bank’s parameters for loan approval, your request for home loan financing will be denied. 

Each home loan application taken at the retail branch is considered in-house and, as a result, will not require multiple levels of approval in order to process your loan.  As a matter of fact, the mortgage banker will have the flexibility to personally handle each loan application and consider each applicant on a case-by-case scenario. When the loan is logical and feasible he or she will have the ability to approve the loan on its own merits.  Mortgage bankers will also actively seek out a specific type of mortgage applicant. It will be a type that the retail bank has predetermined as the ideal type of mortgage applicant for the bank’s current portfolio.  If you meet the qualifying criteria set forth by the bank, you will likely qualify for the bank’s best home loan terms.  In these situations, when you meet the retail bank’s current market niche, you will see that the mortgage banker has an extremely competitive product available to offer to you.

On the other hand, mortgage bankers will be limited to the mortgage products offered by the bank at that time.  They will also represent the bank’s interest only, as they work directly for the bank.   Each division working in connection to the overall bank’s operations will have a number of key indicators that they must closely monitor to determine the division’s level of performance.  The most basic performance matrix involves profitability.  In order to maintain a certain level of profitability, each division must accounted for all expenses; then the income needed will be determined by the expectations pertaining to the total amount of profit for that division.

Most mortgage bankers are paid on a salary and will have a number of expenses that are fixed to the retail branch, their employer.  The amount of income needed to maintain essential operations must come from the income collected on the loans generated by them.  Therefore, a mortgage banker’s minimum income earned from each loan will likely be higher than the income needed by a mortgage broker for the same purpose.  Note: I do not profess to say that mortgage bankers will charge more; rather, I am simply saying that their cost structure is such that they will need to collect more to break even than what a mortgage broker will need to break even.

One final factor: Mortgage bankers lose the personal connection or relationship that can be attained and nourished by working with the same person year after year.  Mortgage bankers are direct employees of the bank and can, therefore, move into other departments or even other locations, depending on the retail banks needs.  These employees may even move on to pursue other interests or find themselves promoted to a different job.  Their primary role is to service the mortgage needs of the bank’s customers as needed, from 9 to 5 or whatever the bank’s hours might be.  If you are looking for a personal relationship from your mortgage provider, you will be less inclined to get that from your mortgage banker than from your mortgage broker. 

A mortgage broker can be your trusted advisor and your friend.  Mortgage brokers build their business on relationships and will have an incentive to win you over.  Most mortgage brokers work on commission only and, therefore, require the need to earn your business in order to maintain the standard of living they have grown accustomed to.  Mortgage brokers differ from mortgage bankers in one key area: they work directly for you. 

Mortgage brokers can best be compared to a travel agent. But instead of finding the best deals on airlines, they find the best deals being offered by other banks.  Mortgage brokers will normally have access to a number of lending institutions and, based on your criteria, will find the lender whose market niche you meet.  For example, let’s suppose you have a high credit score and you are self-employed.  Some banks might find that a self-employed borrower is too much risk for what they are considering and will deny the applicant on the spot; whereas, some banks will have no problem at all and may even offer a pricing special for just such a borrower.  In these situations, a mortgage broker will be able to get you to the particular bank that offers you the best benefits.  You will not have to go out on your own to find the bank offering the best pricing based on your criterion; instead, the bank is brought to you.  If one bank does not have the ability to approve your loan, then the next bank could.  You will have limitless opportunity for your loan to be approved.

Mortgage brokers also work within the wholesale market.  Lenders will offer premium pricing to mortgage brokers in order to attract business to their specific bank.  The pricing offered in the wholesale markets will almost always be lower than the pricing offered to the retail markets.  Keep in mind a retail bank branch will have already earned your business if you are working with their mortgage banker, whereas a mortgage broker can simply bypass their bank and move onto the next.  Not only should a lender be competitive in the type of financing offered to the borrower, a lender should also include incentives to attract the mortgage broker.  The incentives offered to the broker involve additional compensation that can be earned by the broker for using said bank.  Most proficient mortgage brokers will extend some of those incentives to the applicant in an attempt to maintain a reputable relationship with you. 

The biggest obstacle a mortgage broker faces pertains to how the credit approval process is standardized in the wholesale market and will usually be positioned to some form of automated approval process.  Although the mortgage brokers will have a considerable number of different banks to choose from when opening their potential product lines, they do lose their ability to consider a loan on a case-by-case basis. However, mortgage bankers have that flexibility, even though it does not generally sway too far from what the automated approval process favors.

Finally, competent mortgage brokers will have systems instilled to ensure that they become your mortgage provider for life.  They want to earn your trust in a way that will inspire you to refer business to them anytime the opportunity presents itself.  They also want to maintain a solid relationship with you to warrant your continued commitment to them and the services they provide.  Strategizing on ways to succeed at this is a key component to how successful a Mortgage Broker will become.  A skillful mortgage broker will become a key figure to you and your family’s life cycle as your trusted advisor for all of your financial needs and an asset to the family.  In order to maintain a relationship of this stature he or she must get to know you and your family and become a friend of the family.  A relationship this resilient is built through hard work and devotion over prolonged periods of time.  You will not likely build a relationship with one of the bank’s employees – the mortgage banker.