Broker vs. Lender

This is a great question.....but also a trick question. Typically the question is "should I use a broker or lender", with the assumption that a broker is a "middle-man", and a lender is the true source of the loan.  But it should be clarified that it is the wholesale division of the lender that is the true source of the loan, and consumers deal with the retail division of the lender. One must have a mortgage license to deal with the wholesale division of the lender. The retail division makes its money the same way a broker does- through origination fees, broker/admin fees, and Yield Spread Premium. Thus whether a consumer uses a broker or retail division of a bank, the consumer is still 1-step removed from the "source", so a broker is no more a middleman than the retail division.

It is always wise to shop around for your mortgage, and a retail division of a lender (ie Bank of America) should always be consulted. The advantage to dealing with a retail division of a lender is that a lender will honor a mistake in the customer’s favor made by one of its employees, but it probably won’t honor a mistake made by a mortgage broker. The disadvantage to dealing with a retail outlet of a lender is that only those lender's loan products are available to the consumer, whereas a broker has access to a wide array of loan programs, and knows where to go for a particular scenario. For more discussion on this topic, read the Mortgage Professor article, "Mtg Brokers vs. Lenders: Some Questions".