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Mortgage Broker, Direct Lender, or Mortgage Banker?

There are three sources where a commercial or multifamily borrower can obtain a loan.  In this article we will discuss each avenue.  This article is not intended or is it applicable for owner-occupied one-to-four family properties.

Direct Lender

A Direct Lender can be any of these sources: bank, life company, pension fund, credit union, mortgage REIT, or even a private or public mortgage funder. Each type of lender has their advantages, but the one thing remains consistent is that every lender has their preferred box for the type of loans they will provide.  Here is a list of common preferences:  loan sizes, LTV, property underwriting requirements, DSCR, asset age, asset type, asset class, tenant profiles, location, demographic statistics, asset competition in the market, borrower credit profile, and borrower background profiles.

If you happen to know all the lender’s parameters before you file an application and know that you will meet all of them, then go ahead and file.  Otherwise, you most likely will end up with a different outcome than you anticipated or worse, have spent a lot of time and money and not have your loan approved. A Direct Lender is also known as a Balance Sheet Lender, meaning the loans they close are made to be held.

Mortgage Banker

Sometimes there is a very fine line between what constitutes a direct lender versus a mortgage banker.  While the mortgage banker has the same loan preferences as the direct lender, they typically will not keep the loan, may only keep a portion, and may or may not service the loan.  Some mortgage bankers work off lines of credit, others may only table fund (loan is sold before the close), and others will package your loan with others for eventual sale in the secondary market.

Some good examples of a mortgage banker are: CMBS lenders, GSA lenders or programs (Fannie, Freddie, HUD, SBA, USDA), and of course, any lender that does not intend to keep the loan on their balance sheet. The mortgage banking business has greatly expanded over the years and if I had to take a rough guess, most likely 75% or more of all loans today are not held by a lender on their balance sheets.

Mortgage Broker

This is typically the best avenue for most borrowers to use in getting a loan for their property.  Since a mortgage broker is in the loan market every day, they know which lender can offer the best terms for you and your property.

Like an exclusive sales broker agency, a mortgage broker is acting as your agent and has a fiduciary responsibility to act in your best interest.  A seasoned mortgage brokerage company should have solid relationships with many lenders. They should know each of their lenders underwriting preferences. They must be able to guide, explain, assist, underwrite, process and be the main contact person from inception through post-closing.   You should be comfortable with this agent and there must be a two-way trust.  Most direct lenders and mortgage bankers prefer to work only with professional mortgage brokers and will give them their best pricing.  They do this since they know the broker will be back with more clients and deals which greatly assist them in meeting their own lending targets.

Some professional mortgage brokers like Atlas Commercial Capital may even get designated as a lender’s correspondent.  That typically means that the lender has vented the broker, checked their backgrounds, licensing, etc. and found them to be an acceptable source of loans. It should be noted that many more lenders today will not accept loan submissions directly from borrowers or non-approved brokers.

Keep in mind that not all mortgage brokers are qualified or licensed, and some are not even ethical.   Therefore, a borrower must be prudent when choosing the right one to accomplish their goals.  Never give a broker an upfront fee no matter what they want to call it.  The broker only earns their commission when they have accomplished their goal of producing a lender’s qualified commitment that you have accepted. In most cases, the brokerage fee is paid at the initial loan disbursement.

Disclaimer

The topics contained in this and other Blogs I post are for informational and illustrative purposes.  They are not meant to be inclusive and should not be constructed as legal or accounting advice.  Always consult with your attorney and accountant before signing any agreement.

 

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