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Which Type Of Lender Is Right For You?

Which Type Of Lender Is Right For You?

By Crissinda Ponder, Bankrate.com (TNS)

There was a time when most homebuyers obtained their mortgage loans through their banks or credit unions. Today, however, there are a number of additional home-financing providers. Which one is right for you? Let’s take a look at the options.

DIRECT LENDERS

Banks, mortgage banks and nonbank lenders all are direct lenders; that is, employees review your application and make the decision to lend you money. Typically, the institution will sell your loan on the secondary market.

Benefits of a direct lender:

– Reliability: You probably know and trust the institution. It is regulated by state and federal agencies and likely has strong ties with your community.

– One-stop shopping: You deal directly with the source of your loan.

– Savings: As the loan originator, an institution may save you money in the loan process.

– Speed: A direct lender also may process your loan faster than other providers.

Risks of a direct lender:

– Limited choice: Lenders offer only their own programs. To comparison shop, you will need to speak with several lenders.

MORTGAGE BROKERS

A mortgage broker is a middleman who may represent the mortgage loan products of many lenders. The broker’s goal is to match you with the loan product that best meets your needs at the best price. Once your loan is approved, you will usually deal directly with the loan originator or their mortgage service provider.

Benefits of a mortgage broker:

– Variety: By shopping across a range of different programs and lenders, a mortgage broker may find you a better fit than a direct lender could.

– Qualifying: A mortgage broker can best steer you to the national or regional lenders that are most likely to accept your application based on your financial and personal information.

– Savings: You may get a more favorable loan rate.

– Speed: A broker saves you time shopping for a loan.

Risks of a mortgage broker:

– Hidden costs: Some mortgage brokers attempt to increase their profit by writing hidden costs into your loan. Best hedge: Know the loan process and ask questions.

Most financial institutions offer a limited menu of loan products, just as mortgage banks do. They typically hold mortgages in their portfolios or sell them on the secondary market.

HOME BUILDERS AND REAL ESTATE AGENCIES

Many large home builders and real estate agencies now own an in-house mortgage company to make it easier to buy their properties. These affiliated companies may operate as a mortgage banker or broker.

WHICH LENDER IS RIGHT FOR YOU?

Depending on your credit history and circumstances, you may benefit by using one source of mortgage loans over another.

WHAT KIND OF BORROWER ARE YOU AND WHAT’S THE BEST SOURCE FOR YOU TO SHOP?

– Excellent credit, easy access to financial documents, longtime employee of one company: Internet lender, bank or mortgage bank.

– Self-employed borrower, don’t want to share data about income or assets with mortgage provider: Mortgage broker.

– Repeat home shopper, rate-and-term refinance customer, financially savvy: Internet lender.

– Adjustable-rate mortgage shopper, relationship customer with many accounts at one institution: Bank, thrift.

– Convenience shopper, wants easiest loan to get, even if it costs more: Home builder or real estate agency lender.

TIPS FOR WORKING WITH LENDERS

– Get recommendations: Ask friends and family members for suggestions, especially if they’ve recently obtained a loan.

– Check credentials: Mortgage bankers are regulated by either your state’s department of banking or division of real estate.

Check with the agency to see if a lender is in good professional standing. Mortgage brokers may or may not be state-regulated. If not, check with the local chapter of the National Association of Mortgage Brokers or the Better Business Bureau to see if their record is clean. The Library of Congress has a good index of state and local government websites.

– Do your homework: Learn about typical mortgages and ask questions when something looks amiss; a broker may be trying to pad closing costs or other fees at your expense.

– Take care online: There are plenty of attractive deals online, but first make sure you’re dealing with a reliable broker or lender.

– Extra care during peak season: Unscrupulous lenders and brokers are more apt to quote you bogus rates or slip in extra costs during peak homebuying season, in hopes you won’t notice.

Photo: Be careful out there. Thomas Kohler/Flickr

Social Media Can Give Banks An Inside Look At Potential Borrowers

Social Media Can Give Banks An Inside Look At Potential Borrowers

By Tim Grant, Pittsburgh Post-Gazette

The personal information that friends share on social media websites is being used by a growing number of financial institutions to build a credit profile for potential borrowers, in addition to the official credit report. How that information can — or should — be used by lenders is still up for debate.

“Our view is there is a constant push by lenders to manage risk for their loans. They want more data to qualify the creditworthiness of the loan applicant,” said Thomas Pryor, a spokesman for PersonalLoanOffers.com, a personal loan matching network based in Fort Lauderdale, Florida. “Our company policy is against it.”

He said lenders are logging into Facebook, Twitter, Match.com and other social media websites to look for items that provide insight into a loan applicant’s lifestyle and behavior. They also use such websites to verify any public information about an applicant.

Lending Club, a peer-to-peer lending network based in Redwood, California, routinely uses social media to gather information about loan applicants but says the information would only be used to deny a loan if it raises questions about an applicant’s identity.

“We don’t use social media to make credit decisions. We do sometimes review online data to verify identification or prevent fraud,” said Scott Sanborn, chief operating officer at Lending Club.

PNC Financial Services does not review its customers’ social media activities when reviewing loan applications, said spokesman Fred Solomon.

Lenders are not the only ones using social media. Collection agencies and lawyers use social media to track down people. Hiring managers also are using social networks to conduct reference checks.

Lenders, in general, are cautious of denying loan applications based on what they discover on social media websites because they run the risk of violating the Equal Credit Opportunity Act, which requires lenders to tell borrowers why they have been denied credit.

“The rule requires lenders disclose the top four primary reasons the loan was not approved. If social media is in there, it would be listed,” said Nessa Feddis, senior vice president and deputy chief counsel for consumer protection and payments at the American Bankers Association in Washington, D.C.

Feddis said banks are required to monitor social media for complaints about the institution itself. If a bank representative sees a tweet from a customer — such as one about a job loss — that raises eyebrows, he would probably inquire further. But the bank would not make a lending decision based on a tweet alone.

Representatives at PersonalLoanOffers feel strongly that what anyone says in a social media setting should not have any bearing on their financial life. “Our position is we condemn the trend,” Pryor said.

“With social media, there is no process or path for borrowers to dispute incorrect items or invalid information that potentially prevents them from getting a loan they need.”

AFP Photo/Leon Neal

Banks Demand Pity Party Over Volcker Rule Losses

Banks Demand Pity Party Over Volcker Rule Losses

Whatever successes might have been attained within the hundreds of pages of regulations implementing the Volcker Rule, our nation’s bureaucrats must have known they couldn’t do anything that would force banks to unearth any long-buried losses in their financial reports. Because then many bankers would feel victimized. They would demand that regulators rush to soothe their hurt feelings. And America would never be the same until the banks could keep those losses unrecognized again.

Yes, I’m kidding. But the banking lobby isn’t. This week, a Utah-based lender, Zions Bancorp, said it would have to take a charge to earnings in the neighborhood of $387 million because the new rules will force it to sell a bunch of collateralized debt obligations. Those CDOs declined in value a long time ago. But the accounting rules said Zions didn’t have to include those losses in its earnings. Now that Zions has to sell them, it can’t keep the losses buried and must count them on its income statement.

A few hundred other lenders may be in similar situations, though probably none as extreme as the one at Zions. Now the banking industry’s numerous lobbying groups are complaining to regulators and asking for clarification of the rule — footnote 1,861, if you care to look it up — which means they don’t like it and want it changed. They also have enlisted several U.S. senators to intervene with regulators on their behalf.

It generally isn’t a good idea for the government to pick winners and losers or to tell companies what investments they can’t keep. Surely there is money to be made somewhere buying up assets that banks aren’t allowed to own anymore. It’s hard to tell if the regulators intended the consequences in this instance or not, as part of the rules’ prohibitions against banks sponsoring or owning stakes in hedge funds and private- equity funds.

That said, the point of the Volcker Rule was to keep banks from gambling with depositors’ money. So it shouldn’t come as a surprise that banks face new restrictions on the types of investments they can make. At some point, after three years of hand-wringing, the banking regulators have to stop revising what they’ve passed and declare it final, which they happen to have done already this month. Whining from bankers about their sudden inability to paper over losses on old CDOs isn’t a sufficient reason to reopen the process all over again.

(Jonathan Weil is a Bloomberg View columnist. Follow him on Twitter @JonathanWeil)

Photo by “mlmdotcom” via Flickr