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Banker, Broker
In their search for the best deal, mortgage shoppers usually try to figure out who in the world of money is doingwhat to whom.
Even in the world of money, the complete transformation of the mortgage business since 1983 has left manylenders confused about who is doing the doing.
Borrowers generally have the impression that banks loan their "own" money; and while stodgy and rule-ridden,are likely to play the game straight. A bank may change its name over a weekend twice in one year, but it willalways be open the next Monday, promises kept.
However, in the modern mortgage world, most of the money is being loaned by non-banks. When the averagemortgage shopper calls a non-bank, justifiable confusion is expressed in either of two questions- "You sell all ofyour loans, right?" or, "You are...a, uh...a broker?"
As opposed to the solid (if stolid) feel of "bank," the term "broker" conjures something slightly slippery,fast-talking, maybe here today, gone tomorrow. This negative connotation sometimes causes an unfortunaterephrase of the second borrower query- "You're just a broker, right?"
I'm sorry to confirm the deterioration in American finance, but these days, everybody is "just" a broker. Bank,mortgage bank, or broker working out of a spare room at home, we are all doing exactly the same thing-preparing loans for sale to Wall Street.
I won't bore you with a dissertation on the old S&L days, and their demise, nor on the creation of the modernmarket for mortgage-backed securities. Instead, here are clarifications of a few of the most confusing modernconcepts.
Loans "sold". All modern mortgages are sold to Wall Street within a couple of weeks after closing, no matterwho the local retailer ("originator") was. To the degree that a any bank is in the mortgage business today, it has abrokerage group glued onto one side, and loans skip off the actual bank to Wall Street like a stone across acreek.
"But, my bank says they never sell their loans." Minor marketing fib- the loans are always sold, but banks oftenretain the right to "service" the loan. "Servicing" is the big money maker for all of us, whether we keep it or sellit when we sell the loan. The outfit to whom you send your monthly payment (the "servicer") essentially neverowns the loan itself.
Exception- "portfolio lender". Usually surviving S&Ls, these are the only truly unique mortgage lenders (GreatWestern and World in Boulder County). In exchange for somewhat tougher loan terms and prices, a portfoliolender will hold mortgages for investment -- loans which are high quality, but unusual, and which Fannie Maewould not approve, and therefore could not be sold to the Street.
Big versus small. In a local example, Norwest Bank has a huge mortgage operation, and it and its large cousinscan sometimes solve problems the rest of us can't. Fannie Mae audits closed loans for creative underwriting, andforces lenders to buy back imprudent ones. A big outfit can eat Fannie's spitbacks, while a small ones dare notrun the risk. However, all small mortgage retailers have access to big, aggressive lenders at the wholesale level.
To illustrate the unimportance to consumers of the institutional envelope -- the storefront -- of a given lender,follow the travels of one of the most able groups of lenders in town.
For years they had worked at Bank Western, a surviving S&L. Three years ago First Bank Systems(Minneapolis) bought Bank Western, and gradually folded the operation into FBS Mortgage. First Banks thenbought Colorado National Banks, and renamed FBS Mortgage the more native-sounding "CNB Mortgage." Ashort while later, FBS (the bank) decided to leave the mortgage business altogether, and CNB Mortgage hasbeen sold to Knutson Mortgage (Minneapolis again).
While the merry-go-round was less than fun for the original Bank Western group, borrowers did not suffer.Today you'll find the same, able human beings in a steady situation at First Colorado Mortgage with the sameproducts at pretty much the same prices they've had since the end of the S&L days. [1998 update- They'vemoved again, "Premier Mortgage". Pretty much same products and prices; bankers, brokers, whatever.]
No matter what the surrounding envelope, like all the rest of us, they were, have been, and are... brokers.
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