Mortgage broker vs. direct lenders?

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We are in contract on a house. We’ve been working with a local mortgage broker recommended by my RE agent. She’s been very helpful to us in recommending types of loans, organizing our paperwork, and getting us pre-approved. She also took care of getting us a HELOC that we needed (without getting paid for that service, I think).

I’ve been doing some rate shopping today. It looks like we could get a better deal through a direct lender than with our mortgage broker.

The broker quoted us a 7/1 jumbo ARM at 6.125% and a 30-yr fixed jumbo at 7.125%, both with 1 point. I’ve spoken with Countrywide and Quicken Loans, and they are quoting me roughly 6% on the 7/1 and 7% on the 30-yr fixed, both with 0 points.

So, two questions:
1) I’m feeling guilty about going with one of the other lenders after this mortgage broker has been so helpful to us. What do you think?
2) Why the difference in rates between the lenders and the broker? Is there a catch?

Thanks!
Update, Thursday 3/6.
Thanks, everyone, for the responses.
I’ve done a little more digging, and — surprise! well, not really — the rate my mortgage broker was quoting was actually pretty good. Turns out, she was qualifying us for essentially a “stated income” loan, because we won’t sell our current house till after we’ve closed on the new one. So, all those lower rates I heard from other lenders wouldn’t actually be available to us.
Lessons learned? 1) My mortgage broker really should have been more clear in explaining the circumstances of our loan; 2) I should have called her as soon as I saw lower rates and asked why hers were higher; 3) lots of loans sound good at first, until you really start digging into the details.

4 Comments
  1. Reply
    Ron da Don
    February 16, 2011 at 10:26 pm

    I would ask your broker about it and give her the opportunity to do better, or at least match it.

    Don’t feel guilty – one point on a jumbo is a lot of money. Many times mortgage brokers think they can charge more on referred deals, since the client is less apt to shop around.

    That being said, I checked rates, and it hard to believe Countrywide and Quicken would charge 0 points for those rates. So be careful. Get a Good Faith Estimate to see if there are other charges included.

    By the way, with all due respect to Farina below, a 7-year ARM is okay, especially if you have good credit and you only anticipate being in the home a few years. Foreclosures happened mostly to people who took out 2 or 3-year ARM subprime mortgages. The rates adjusted up, and because the subprime loan programs no longer exist, they can no longer refinance out of it. Subprime ARM rates always adjust higher due to a high margin. “A” paper ARM (both conforming & jumbo) rates adjusting today are actually going DOWN.

  2. Reply
    Junius L
    February 16, 2011 at 10:35 pm

    Buyingahouse,

    The broker is ripping you off. Those rates are obscene and as a broker myself, i’m ashamed of what my peers are doing. Yes, brokers are helpful in so many ways but that doesn’t mean they deserve a $ 15,000 check for information. I’ve attached a pdf under my sources down below for you to check out.

    Brokers are not created equal. If you want to work with them in the future, ask these following questions first:

    1) What are your top 10 banks that you work with? if you don’t recognize the banks, get the hell out of there. Top brokers typically stick to the major banks like Wamu, wells, countrywide, citi, chase, usbank and GMAC.
    2) Am i getting the “par” rate? This is asking them to disclose the rate the bank qualified you for without any additional cost to you and without any yield spread (kickback) coming from the bank.
    3) Are you with the Better Business Bureau? So many people don’t research this. If they’re not a member, don’t trust them. go to http://www.bbb.org to find them.

    I’m sorry that this broker is taking you for a ride. It’s a shame but most brokers aren’t regulated very well.

  3. Reply
    ADP_14
    February 16, 2011 at 11:07 pm

    Lenders have greater flexibility then brokers about what they can fund. Also, a lot of lenders pay their loan officers off a % in volume and do not have the charge points to make money. A broker has to charge a slight fee (the point) to make money on the deal, and may be making a little more by upselling the rate a bit (doesn’t sound like too big an upsell though).

    To ask the broker to match the rate would probably mean asking them to make no money on the deal. It’s the same difference between shopping at Wal Mart or supporting your local drug store. The local guy probably costs a bit more, but you get to feel good about going with the local guy rather then supporting a heartless big chain store.

    Looking at my own rate sheet, it doesn’t appear that the broker is being a pig about it, but the way the business is structered demands that they charge you a bit more so they can eat. Remember, they don’t get paid if you don’t close.

    Good Luck.

  4. Reply
    farina
    February 16, 2011 at 11:33 pm

    Do not get an ARM! The rate will change in a few years. that’s why the name “Adjusted Rate Mortgage”. Guess why there are so many forclosures? Many got ARMs and when the rate changed, they could no longer afford the payments!!

    Tell the broker what Countrywide is offering. If you are getting 100% financing, I can see why the interest rate and point.

    Brokers are not the the actual lenders, they contract the loans from banks and other sources. So, the can “shop” for the best to offer you. He can certainly contract through Countrywide for you. However, one thing is what Countrywide offers you before qualifying you (getting your credit score, know your financial situation), and another is what they will qualify you for. The reality may be different thant the 6%, 0 points.

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