Big banks not fighting for customers looking for better mortgages and lower rates
Even two years ago, savvy homebuyers found the best mortgage rates at banks. Not anymore. Wells Fargo’s web site on Friday quoted 7.25% for A-credit borrowers, 3/8 points higher than top local brokers.
Conventional wisdom tells us that “buying direct” –in this case, borrowing directly from the lender—saves money. Why the sudden change?
There are several reasons.
1. Consolidation. Wells Fargo and US Bank, in particular, are digesting costly mergers. So, in addition to exacting hefty fees and cutting salaries, these banks are turning to higher-rate loans as a source of badly-needed earnings.
2. Bureaucracy. More people and more procedures mean higher costs. Even though big banks have centralized their loan operations, cost savings have not yet been realized.
3. Recession. Major lenders have taken huge loan write-downs and have increased their loan-loss provisions. Despite federal pleas the contrary, the burn has resulted in tighter credit-quality standards. Banks are making fewer loans, at higher rates.
4. Marketing. When it comes to banking, billboards and sports-facility ads don’t affect consumer habits. People go to the bank closest to home. The area’s #3 bank, TCF, writes a lot of loans. They take the business that comes through the door.
Mortgages available from mortgage brokers
All this has made a heyday for brokers. Formerly relegated to subprime buyers, brokers have quietly begun to write A-paper loans in increasing numbers …and at attractive rates.
The irony? They’re doing it with the big banks’ money.
Most banks lend directly and “wholesale,” through brokers. For a nominal fee, called origination, brokers write loans at Bank One and Chase, among others. And because a typical broker uses dozens of lenders, loan officers can shop for the best pricing.
Closing costs, the money the borrower pays to obtain the loan, are often higher through a broker. But consumers are happy to get the lowest rate, because their mortgage payments are lower as a result. Many borrowers can also finance their closing costs.
Some brokers beat the banks’ closing costs, too. The cost of a loan is affected by many variables, but borrowers may be able to negotiate some of the fees.
If you’re in the market for mortgages, visit your local bank … and your local broker.
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