The Mortgage Broker Advantage
Here are some thoughts from Jim Kemish, the President of Power Mortgage on the role of the mortgage broker, the evolution of the market, and how you will benefit from the changes.
The Best Way
In our opinion, the best way to get a mortgage has always been to apply through a mortgage broker. We are happy that the rest of the country has come around to our way of thinking. The percentage of brokered mortgage origination has risen dramatically over the last decade from 25% of all origination to 70% recently. We believe that within the next 10 years that number will continue to rise and ultimately approach 100%.
You Want the Best Deal
There should be absolutely nothing surprising about this prediction. There are an infinite number of parallels all around us. As long as human nature directs each of us to select the lowest price from among a selection of homogeneous products, markets will continue to become more efficient towards that end.
Efficient Markets
An example of a market that has realized an extremely high degree of efficiency is the stock market. The stock market has become so efficient that the mechanism of efficiency is completely transparent. When you want to buy a stock, the price your broker quotes you is the lowest "offer to sell" from among many market makers. When you want to sell a stock, the price your broker quotes you is the highest "bid to buy" from among the market makers. Personally, you never see the quotes from the other non-optimal market makers.
Our Job
A good mortgage broker serves the same function by sorting through the many lenders who offer the product you want. This process should be as transparent to the consumer as the behind-the-scenes activity of the stock market.
The Super Broker
The word "efficiency" in this context means the quick, simultaneous inclusion of the maximum number of market participants in a single place for the purpose of insuring that the borrower gets the very best deal. Although the mortgage industry has yet to develop a true single-location, real-time broad-based market place, a good broker serving in the capacity of a human information processor can come close to being a reasonable substitute for the mechanized super efficiency of a marketplace like the stock market. This factor, as crucial and central as it may be, is just a small part of what contributes to the complete picture of the "super-broker".
Technology Helps
But before diving into my super-broker definition, it's worth mentioning one industry change that has contributed significantly to the super-broker's arsenal. Both Fannie-Mae (FNMA) and Freddie-Mac (FHLMC) have recently allowed direct broker access. This means that if your mortgage broker is equipped with the correct software, and has received FNMA and FHLMC approval, they may submit your file directly to FNMA and FHLMC before selecting your lender. This means that your mortgage can be fully approved while your broker continues to shop for the lowest rate. When the lender is finally selected they will accept the direct FNMA or FHLMC approval as if it were their own.
Objectivity Means Lower Rates
This is not ultra fresh news, but the impact is growing and is just now becoming a significant issue. By taking the approval process out of the hands of the lender, the broker is armed and shopping for a rate with a fully approved file in hand. No longer is the selection of a lender as heavily weighted by the brokers opinion of the underwriter as it once was.
Competition Works
In other words, lenders are increasingly being selected by brokers primarily on the basis of pricing. This has impacted many lenders in recent months, often taking them by surprise as they have discovered that when their pricing goes just a little higher than the competition, volume drops off noticeably. The wholesale lending business has historically been "price elastic," and their product seen as non-homogeneous. Within the old environment brokers had a high degree of "brand loyalty", frequently sticking with a favored lender and underwriter even if their interest rate was high. The technology based changes in the market have been the catalyst of evolution towards a "price inelastic" market in which the lowest rate lender would win all of the business.
You Are The Winner
This all means that lenders are gradually being forced to be more competitive. This in turn means that you as the borrower are increasingly likely to get a better deal.
The Right Work Ethic
So much for all of the technical stuff. As powerful (and essential) as technology is, it alone can not determine who is the best at what they do. The super-broker is a cut above in all of the human ways that really end up making the big difference. They pay attention; they care; they work hard. They are totally involved with the work. And it all comes together over time and with experience to produce that "super" status.
Understanding Your Needs
The super-broker is interested in the client's story, the client's goal, the client's tolerance for risk, and in insuring that the client is getting a product that fits their needs. To the client it should mean the best of all possible experiences during the process, and the lowest of all rate and cost structures at closing.
Yes, There is a Difference!
Let's face it, the world is full of people who are less than adequate at what they do. Some just don't care. Others may be well meaning and super nice but don't have the resources or experience needed to deliver a superior performance. Sorry, but, all told, there is a big difference. And it doesn't boil down to who has the most computer equipment (although the computer equipment is really useful).
It's About You
In the end, it all comes together when the human characteristics of the super-broker most effectively harness the usefulness of all of the new technology and put it to work for you.
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