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Finding Right Loan Officer

Understanding how an originator operates

July 16, 2001

By Mortgage Daily staff

Finding the right loan officer can make the difference between owning the home you want and losing it because you couldn't obtain adequate financing by the closing date. That's because there are many programs for many situations, and a good loan officer knows which program is best for you.

Loan officers are also known as "loan originators," "loan agents" and "sales reps," among other titles. In order to choose a capable loan officer, it is a good idea to know that a loan officer is a salesperson. Some loan officers earn a base salary in addition to bonuses or commissions, and others work on straight commission with no base salary. In either case, the loan officer is responsible for convincing prospective borrowers that he or she can obtain financing under acceptable terms in time for the closing. Loan officers don't generally have any authority to approve loans. However, a good loan officer will usually have a productive relationship with the underwriter -- the person that does have the authority to approve your loan. In any event, the loan officer will often be the primary contact at the mortgage company you choose.

Loan officers can be employed by a lender or a mortgage broker. Working directly with a lender means that you are working with the company that has the authority to approve your loan. A direct lender loan officer is more likely to have a sound understanding of the guidelines and procedures of that specific lender, which can help the transaction process to move more smoothly. However, a loan officer employed by a mortgage broker -- who doesn't actually lend money but can work with many lenders -- usually has access to many different programs. If you are turned down by a direct lender, you will usually have no options. But with a mortgage broker, your loan package can be resubmitted to other lenders that may still approve your application. Because mortgage brokers acquire & service the customer and process much of the paperwork, lenders will give them wholesale pricing. For this reason, it is possible for a mortgage broker to provide terms as competitive as a direct lender. There are even some direct lenders that only accept applications from mortgage brokers and have no loan officers of their own.

In addition to points and fees, loan officers can earn income from yield spread premium. Basically, this means that an interest rate higher than the market rate will earn the loan officer additional fees (about 1 percent of the loan amount for each additional one-third percent in interest rate obtained). For instance, if the market interest rate for a particular day is 7.50 percent, but the loan officer convinces you to accept a rate of 7.875 percent, the loan officer will earn an additional 1 percent of your loan amount.

Mortgage loan applicants will often look to loan officers for guidance about where interest rates are heading. Mortgage rates are closely tied to Treasury securities and are impacted by movements in the bond market. A good loan officer won't necessarily try to predict whether mortgage rates will go up or down, but instead will inform you about your option to lock your interest rate or let it float, and about the risks associated with floating your rate. If you choose not to lock your rate, your loan officer -- knowing that you are unlikely to switch lenders near the closing date -- might have an opportunity to earn more yield spread premium.

Once you do lock your interest rate, you should be able to obtain a written confirmation of the rate lock, including the date it expires. In the case of a mortgage broker, you should obtain a copy of the lock they received from the lender.

Big producing real estate agents will usually only work with dependable, quality loan officers, so these referrals can be quite valuable. Some agents have in-house loan officers. A benefit to this situation is that the real estate broker carrying the license of your agent has a greater interest in seeing the transaction close and may offer some flexibility in commission rates or loan fees. However, a loan officer that is assured of getting the loan because of a strong referral may not always provide the most competitive terms; it is a good practice to compare the closing costs of at least three lenders by obtaining good faith estimates. Let each of the lenders review all of the competing estimates and point out problems they may see. This process will also help you begin to develop a relationship with the loan officer you eventually choose.

Builders often have their own in-house financing. It is not unusual for builders to provide less favorable terms if you use an outside lender. For instance, while some builders will pay for an owner's title policy if you use their in-house mortgage company (which is regularly paid by the sellers in most situations anyway), they won't pay for the policy if you go outside for your loan. You can still use the comparison of competing estimates to determine that the builder's deal is the best one.

A loan officer with many consecutive years' experience has likely been through many situations only encountered with the passage of time. This person also has been able to sustain a living in the mortgage profession, indicating a history of successful closings. While a new loan officer may have the best intentions, there are many variables involved in the mortgage process that can cause favorable terms to worsen or deals to fall through, and experience helps prevent this.

Most mortgage companies now offer instant automated approvals for borrowers with good credit and verifiable income. With an automated approval, not only do you immediately receive confirmation of your loan approval, but you will likely be required to provide far less documentation that traditionally required. Your loan officer should be familiar with these systems to ensure you are not needlessly rejected because of poor data input.

In summary, loan officers are salespeople that are compensated only when your mortgage loan successfully closes. There are advantages and disadvantages to working with a lender versus a broker, and both can provide competitive terms. Loan officers charge fees and earn yield spread premiums, and you should utilize good faith estimate comparisons to determine which mortgage company has the best terms for you, especially when considering a builder's or real estate agent's in-house mortgage company. Finally, much value can usually be associated with many years' experience in mortgage lending.

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