Temecula, Murrieta, San Diego Mortgage Brokers
Mortgage brokers have been the punching bag for the mortgage business for much of the past several years. Some brokers created bad blood back in the subprime days of the early and mid-2000’s. These risky loans were originated almost exclusively through brokers and it’s well documented how poorly subprime mortgages worked out…a catastrophic failure.
Fast forward to 2011 and the lending environment has changed dramatically. Subprime mortgages are no longer being originated. Banks and brokers are making mortgages to only borrowers that can fully document income, prove they have a few bucks in the bank and have decent credit.
Before we go any further let’s spend a second to describe what “brokering” a mortgage even means. We all know that brokering any product or service means that one party will connect another party to a product or service for compensation. As for brokering mortgages it’s very important to understand there is a completely separate channel for brokers doing business with the banks that will ultimately lend the money. This is called the wholesale channel. This is a division within most of the banks we all know that is specifically set up to work with mortgage brokers. As you would expect from recent mortgage history, the wholesale channel within the banks is very focused on originating and funding only high quality mortgage.
Now let’s get to the “why” part of this topic. Without getting too technical, it’s important to understand the vast majority of mortgages today are either sold to or insured by Fannie Mae, Freddie Mac, FHA or VA. In simple terms, this means lenders are underwriting nearly all their loans to a set of guidelines put out by one of the above entities. Each one has very specific guidelines that need to be met in order to lend money. Many banks take the guidelines as step further and add “lender overlays” to these guidelines which means they make the guidelines even a little more stringent than the base guidelines from Fannie Mae, Freddie Mac, FHA or VA. This gets us to the most important edge brokers have in today’s market. Let’s say Bank X has a lender overlay that says they will only lend to borrowers with a minimum credit score of 640 when the actual guideline allows for a minimum score of 620. If you are working directly with Bank X, they will not be able to give you a loan. If you are working with a broker however, he/she will know which lenders don’t have that overlay. Keep in mind credit score is just one of countless guidelines where lenders may have an overlay.
Unquestionably, there was a cross-section of mortgage brokers that gave the entire business a bad name. Now that cross section (the subprime broker) is completely out of business and we are back to the days where mortgage brokers can serve a very important purpose – work with quality clients that need assistance working through a very complicated lending environment.