There has been a long-running debate as to whether a borrower should use a bank or a mortgage company to obtain a home purchase loan or refinance. The question of which type of lending institution would provide a better rate, better service or best advice is a common concern for most borrowers. Borrowers are also looking for high integrity and stability in a given lending institution. Some borrowers are even worried that the company lending the money may go out of business — leaving them to deal with the consequences. And of course, everyone wants the best price.

First let’s dispose of the myths:
After your loan has been settled and the check has been cashed, it doesn’t matter if the lending institution goes bust. Someone else will take over the servicing of your loan without any change to the terms of your loan.

There is a concern, however, if the lender were to go out of business prior to your closing. This event could jeopardize fees you’ve paid, the rate you have locked in, the loan approval and the timing of your closing. Fortunately, this rarely happens since most states monitor the solvency of lenders on a regular basis. Another myth is that the monthly payments will be made to the institution that “holds” the mortgage. In the vast majority of loans issued, the mortgage is sold off into a large pool of loans, called “Mortgage Backs,” sold back to the public as securities. The monthly payments on a mortgage are made to a servicing entity that collects the payments and allocates the portions for principal, interest, taxes and insurance. They also maintain the account and act as the borrower liaison. So contrary to popular belief, these service entities have no ownership position in individual mortgages.

Can a bank be better priced? The answer is “sometimes yes” and “sometimes no.” Pricing structures and programs will vary greatly from bank to mortgage broker and from one bank to another as well. Pricing will not be as dependent on the type of institution as it will be on the programs the institution has available. Sometimes a mortgage banker or broker will be better priced than a bank, but in some cases the respective rates may flip-flop within a few weeks time. It is important for consumers to check all sources and not limit themselves.

Do mortgage bankers and brokers have a better product menu and greater expertise than a bank? The answer again is “sometimes.” Specific elements like price, service and competency should be judged on a case-by-case basis, not by the type of institution represented.

The important distinctions are, reputation, resources and accountability. Almost everyone knows a friend, relative, neighbour or co-worker who has recently had a mortgage borrowing experience. This is a great way to gather the names of legitimate mortgage loan salespeople — a.k.a. “originators” — in your area. Another source can be your local realtor or your attorney. Not only will they have multiple experiences with these loan originators, they will also act as a source of accountability for the loan originator. A mortgage loan originator will be very wary of losing a valued referral source, based on negative feedback. That fear stems from the fact that they probably receive other referrals from that particular source. The loan originator knows that most realtors and attorneys can be very influential in their marketplace. Therefore, the originator is going to be accountable for his/her actions. This accountability will help you in the long run. Once you have a list of accountable and reputable loan origination candidates, you can see if the advice, programs and pricing they offer suit your needs. The result should lead to your best overall loan and mortgage experience.

Resources:
Home Loans
Home Purchase Loans
Mortgage Loans