Myth: Big Lenders and Major Banks Are Always Better. Fact: Size Doesn’t Equal Security—or Savings Kathy walked in to Chip’s office on a sunny August afternoon. He instantly recognized the lapel pin on her jacket—it was from the investment bank down the street. Chip quickly learned that she was the Branch Director of the Securities Division, where she bought and sold mortgage securities— and she was shopping for a loan! She explained that she knew that all the mortgage funding came from essentially the same source—Wall Street. As a mortgage broker, Chip had access to hundreds of banks and programs, and she knew the value of his expertise. He took out the application and started writing. At face value you might think that major national banks and lenders are the most secure source of funding and information protection—they have the resources and funds, and can provide the highest level of security for their customers’ personal information. While they may have greater resources, major banks and major lenders don’t necessarily enjoy bulletproof information security. In 2005, ABN AMRO Mortgage Group (which owns LaSalle Bank and also InterFirst Mortgage at the time) lost the data for 2 million residential mortgage customers, including customer names, account information, payment histories, and Social Security numbers. Earlier in 2005, 1.2 million customer records were accessed by hackers from Bank of America. (Imagine how happy they—and their customers—were.) Wells Fargo has been hit by hackers three times in the past few years, and Citibank has been hit too. The reality is that any organization is potentially vulnerable. Does that mean major banks and lenders are less safe? Of course not— what it does mean is that information piracy can and does occur, both at small banks and at major, multinational banking corporations. There’s also no guarantee a big bank will give you the best deal on your mortgage, even if you’re currently a customer. (In fact, very few lenders offer better terms to current customers than they will offer to noncustomers.) They may offer the best deal—or they may not. The only way to know is to shop around for the best mortgage.
A bank is not necessarily safer or better than a mortgage broker, either: Once your loan is approved and underwritten there’s no real difference in safety or security between a major bank and the loan provided by a mortgage broker. (In fact, the major bank will probably sell your mortgage on the secondary market just like the small broker down the street, and it could be serviced by someone else within months of closing.) “The little guy can often be a better place for the consumer to go,” indicates David Acquisti, president of MSource Financial Group, and the past president of the Michigan Mortgage Brokers Association. “For example, some big institutions offer all-inclusive loan programs, but they charge higher rates for the privilege. The consumer can often wind up paying higher fees by going to a larger institution. Brokers have a variety of different programs they can offer, whereas a large bank is limited in their products and don’t have the ability to shop around for the consumer.” Because loan officers deal with fewer programs, they can also be less likely to understand the dizzying variety of programs currently available. “An attorney asked me to take a look at a loan on behalf of his client,” said Dave. “The borrower thought they were getting a 1.25% interest rate for 3 to 5 years, and after I took a look at the loan (it was called an option-ARM) and explained it, they could not believe what was going to happen to them. I’ve taken three-day classes on the program to ensure I understand it, and while it does offer a number of options it also can create potential pitfalls that can have major repercussions for a borrower. In fact, I recommend that my clients consult with a financial planner to make sure they can take advantage of all the options. That’s the number one complaint today: the loan officers don’t understand all the products available, so the average consumer has no way to understand all the products available.” Here’s the bottom line: shop aggressively and find the best deal for you. Shop with major banks, smaller banks, major lenders, smaller lenders, mortgage brokers, online lenders . . . shop aggressively—find someone you are comfortable dealing with, and have them find you the best deal. Getting a second opinion is always a good idea. We don’t think twice about asking a doctor for a second opinion, but when it comes to our financial health and well-being, we’re often reluctant to seek advice from another expert. If you suspect your loan officer doesn’t quite understand what he’s explaining, ask another loan officer for clarification. Be careful of out-of-state banks and brokers. They may not understand local market conditions, and may only have an “impressive sounding” name and not much else!
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