If you follow the mortgage production trends year over year you will notice that during periods where the interest rates are low, Banks do a larger percentage of total volume and as rates increase the trend switches over to brokers and correspondent lenders. This trend is quite easy to explain. Clients tend to go to their bank for refinances and tend to use mortgage companies, usually recommend by an agent, for their purchases. Clients often feel that the bank is familiar with their financial situation or they will get a better rate or a simpler process because that institution values their relationship. Unfortunately, this is rarely the case.
Over the past 12 years while working at 5 different banks, as well as working with many other loan originators from other large banks, I have found that most banks suffer from the same weaknesses. I have listed what I believe are the top 5 reason why you should NEVER use a bank for your refinance.
RATE: The idea that a bank will offer you a better interest rate is a myth. Some things to consider: first banks have a great deal more layers of management and overhead then most mortgage companies. Second, banks know that most customers go to their bank for refinancing and they take advantage of it by offering higher rates. This allows banks to appear to be offering “purchase specials” when in reality this “special” is only relative to the bank’s higher refinance rates. Third, many banks will offer discounts for increasing relationships, perhaps autopay, or opening a checking account. Don’t be fooled. It often takes all these “discounts” to get down to the market rate. Finally, banks typically have higher fees including underwriting fees, processing fees, ect… The bottom line is that you should be careful about all the “discounts” a bank offers you during the refinance process. If you price it out with a mortgage company you will likely find the terms are just as good without all the extra requirements.
SERVICE: It is not unreasonable to think that your relationship with your bank is as valuable to them as it is to you. After all, you may know the people in your local branch and they know you. Unfortunately, the people processing and working on your loan are not the people that you have a relationship with and it is rare that the bank staff has any say in the process or the loan experience. The fact is that when it comes to mortgages in the bank environment, any individual loan is not that important in the scope of the pipeline as a whole. There is not a processor or underwriter that has not heard every sad story there is to tell and they are numb to it. Mortgage turn times are predetermined regardless of the situation. Every loan is a rush and so none of them are. Bank employees work for the bank, but at a mortgage company the staff works for the client and can choose from a number of lending institutions and it makes a big difference in the overall loan experience.
CONDITIONS: There is a common misconception that your local Bank has all your information and therefore they will need less. From the standpoint of bank statement this may be true, however, overall banks typically required a great deal more paperwork then mortgage companies do. Even through every loan is unique, banks typically tend to standardize the process by requiring a set list of items needed for every loan. Where this makes sense from a consistency standpoint it can wreak havoc on complex loan situations. Conditions lead to more conditions. When you provide more then what is needed, it unnecessarily complicates the loan process, costing time and can sometimes lead to a good loan being declined or a borrower getting so frustrated that they pull the loan. Mortgage companies tend to tailor the document request to the borrowers specific situation. Although it requires a higher skill set, it is far more efficient.
CHOICES: Mortgage Companies have a huge advantage here for two reasons. First, they can pick the best from several mortgage lenders for your specific situation. One company maybe faster, one better pricing, one company great for FHA loans, and a different company may be best for JUMBO’s. A bank’s range is often limited to both their existing product set and their interpretation of the mortgage guidelines. The second advantage is simple. Mortgage brokers are constantly being solicited to sell various mortgage company’s mortgages. To earn a broker’sbusiness, mortgage companies must always compete for business, which assures that the client is getting a competitive term mortgage and possibly more importantly, better service throughout the process.
SPEED AND FLEXIBILITY: Flexibility is very important in the lending process. 9 to 5 doesn’t always work with client’s schedules. The loan process often requires quick response to various conditions to avoid costly delays and possible rate lock extensions. Most mortgage brokers do not work bankers’ hours and have greater flexibility to handle various conditions. This ability to adjust quickly creates a better experience at a lower cost for the client. Additionally, many banks will prioritize purchases over refinances. It is typical for the refinance process to take 15 to 30 days longer then purchases. The banks are aware of this and will often require longer lock periods on their refinances which adversely effects the interest rate of the loan.
Every mortgage company and bank use a different approach. Although, I believe the generalizations above are true in most cases, there are always exceptions. The quality and experience of the loan officer and the complexity of the borrower’s financial situation play a huge part in the process. Although there are a lot of satisfied bank customers out there, the customer satisfaction ratios drastically favor the mortgage companies. Consider using a broker for your refinance and you won’t regret it.
Zachary Zink | Licensed Mortgage Broker | NMLS 451924
Mountain State Financial Group
Ph: 303-870-6518 | Fax: 720-293-0300