How Direct Lender work

Does it matter whether you choose a mortgage broker or a bank? It might, depending on your needs.

Mortgage banks use their own money to fund mortgages, and their loan officers, processors, underwriters and funders all work for the same company. After the loan funds, it may be kept in the lender’s portfolio of investments, or it may be sold to investors.

Loan officers serve as the bank’s sales force. They usually earn commissions for originating loans, and the prices they charge may not be negotiable. They can only sell products offered by their employer, and that can limit the options offered to you.

Loan officers can offer the same loan at various price points, from “no-cost” loans with higher rates to more expensive but lower discounted rates.

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How brokers work

Brokers act as the sales force for wholesale lenders. Wholesale lenders send their brokers rate sheets, which list the rates and prices available for each product. Brokers are often smaller than banks.

A loan with a higher rate may have “rebate” pricing, money which can be used to pay the broker’s commission and perhaps other closing costs on the borrower’s behalf. This rebate is also called a Yield Spread Premium, or YSP.

For loans with lower rates, the borrower pays the broker’s commission, usually about one percent of the loan amount.

Brokers work with a variety of wholesale lenders, which gives them access to many products at many price points.