Lately we’ve had inquiries about the differences between a traditional bank, mortgage broker and mortgage bank, especially in light of recent Bank of America news that they are exiting their wholesale lending business. Realtors and other real estate professionals should be clear on the advantages and disadvantages of each lending sales channel.

A home buyer can get a mortgage loan in one of three ways: Through a traditional bank, a mortgage broker or a mortgage bank.

Traditional Bank
A traditional bank, such as B of A, Wells Fargo and Chase, works directly with retail loan officers at their respective companies and the bank underwrites and funds the loan. After the loan closes it is usually packaged with other loans and sold to the investment world. Each month the bank cashes the borrower’s mortgage payment, keeps a little for itself, and then passes the money on to the investor that purchased the loan. One benefit of getting a mortgage loan from a traditional bank is that they promise the money for the transaction; it is the bank’s checkbook that funds the loan. A downside to this type of mortgage loan is that the borrower is limited to that bank’s loan programs and rates, and it is time consuming and costly to switch to another loan provider.

Mortgage Broker
A mortgage broker is a person or company that has relationships with traditional banks through each bank’s wholesale channel. They also have the ability to broker to other lenders who would otherwise be unknown to the customer. The broker sends the borrower’s documentation to one of the lenders for the loan to be underwritten, approved and funded. Essentially, brokers can go to any of the banks they have relationships with, and they have the freedom to switch to any other bank. In practice, this has become more difficult due to disclosure regulations and timing. Additionally, during the past few years many banks have closed their wholesale channels. Bank of America is the most recent to do so. The benefit of working with a mortgage broker is that the customer has multiple choices of possible lenders, programs and rates. The major drawback is that the brokers have little control because they are not underwriting, preparing documents or funding the loan themselves.

Mortgage Bank
A mortgage bank, like Opes Advisors, can offer the best of both worlds. A mortgage bank is similar to a traditional bank in that it processes, underwrites, draws docs and funds loans, thereby maintaining control of the entire process. The mortgage bank will then sell the loans after the close of escrow. They typically sell these loans to one of the major banks through their correspondent channel. A mortgage bank can also broker loans when this option is optimal or necessary for the customer due to qualifying issues or program requirements.

So a mortgage bank maintains the two most important aspects of the transaction: it promises the money and it is also not beholden to any one lender, loan program or rate. If needed, at any time in the course of a transaction, a mortgage bank can switch to a different lender provided the lender’s guidelines are met by the borrower. With a mortgage bank your clients can get the best of both worlds.

Opes Advisors takes the ‘best of both worlds’ one step further when we help our clients make financial decisions that are inclusive of their overall financial goals. We review their financial plan and give them confidence that their decisions are consistent with their financial ambitions.

Please contact me to discuss your specific mortgage or financial strategies.

Andy Block - Mortgage Advisor & Financial Advisor
Opes Advisors
Email Me
Direct: 650.931.0605
Fax: 650.931.0601

License #01096311
400 S. El Camino Real
Suite 250
San Mateo, CA 94402
Fax 650.931.0601

Opes Advisors is licensed as a registered investment advisor with the Securities and Exchange Commission (SEC) and is licensed as a Residential Mortgage Lender by the CA Dept of Real Estate.

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