A mortgage banker is an individual or entity that facilitates a mortgage. Mortgage bankers fund mortgages using either their own funds or borrowed funds from a warehouse lender. The mortgage banker earns fees from originating a loan and is typically employed by a financial institution.
Mortgage bankers work with people who are seeking a loan through the complete mortgage process. After originating the mortgage, the banker can either retain the mortgage in a portfolio or sell it to a potential investor.
A mortgage banker is an individual or entity that facilitates a mortgage. Mortgage bankers fund mortgages using either their own funds or borrow them from a warehouse lender.
The mortgage banker earns fees from originating a loan and is typically employed by a financial institution.
The two keys processes in mortgage banking are loan origination and loan servicing.
Understanding the Mortgage Banking Process
The chart below shows the mortgage banking process. There are two key processes – loan origination and loan servicing. The responsibilities of the mortgage banker include assessing the mortgaged property, collecting information about the borrower, and helping to secure the loan. The banker also acts as an advisor to the borrower, as he helps the applicant choose between multiple loan options and which is best based on the client’s needs.
Mortgage bankers are employed by a financial institution and can only give loans through the institution. They must also follow the guidelines set forth by their employer in terms of loan security and provision of collateral.
The loan origination process includes the initial application, where all documents are gathered, the application is signed, and the loan is processed. The loan package and terms are reviewed, and the underlying conditions are settled.
The loan servicing part includes processing the payments, selling the mortgage to an investor, and collecting monthly payments and records. A servicing agent typically handles the paperwork associated with the loan.
Mortgage Banker vs. Mortgage Broker
A similar term to a mortgage banker is a mortgage broker. Unlike the mortgage banker, who is employed by a financial institution, mortgage brokers close mortgages in their own name and by using their own funds.
1. Roles and duties
Mortgage bankers typically facilitate loan originations for the financial institution that they are employed by, whereas brokers are independent professionals that operate in the real estate financing space.
A mortgage broker is not bound or limited to a specific lender or financial institution and can freely search for a mortgage based on the individual needs of the borrower.
2. Level of flexibility
In terms of the level of flexibility, mortgage bankers are less flexible, as they are employed by a financial institution and are only able to provide financing options to the clients that are underlined by the institution.
Mortgage brokers, on the other hand, are more flexible as they are able to understand the needs of the borrower and find the best possible loan options from multiple financial institutions.
3. Level of reliability
Looking from a borrower’s perspective, the reliability is greater on a mortgage banker, as he is employed by a well-known company that specializes in mortgage loans. The banker is paid a salary by the company, so it is highly likely he will work in the best interest of the company and borrower.
Brokers work independently, so there may be a lower level of reliability and trust associated with them.
4. Compensation structure
Lastly, a key difference arises in the compensation structure of bankers and brokers who deal with mortgages. Bankers work on a fixed salary structure, along with any associated fees or performance-based bonuses.
Mortgage brokers work for their commissions or on a flat-fee basis, which can be based on a percentage of the loan. Brokers typically enjoy more flexibility in setting compensation regarding their services, as they operate independently.