A mortgage banker is an entity, such as a company or a person, that originates and sells mortgage loans directly to a borrower. It sometimes services mortgage loans as well, but in most cases, this entity sells the loan to a secondary mortgage company soon after closing. Mortgage bankers are also called direct lenders or non-institutional lenders.
Often, a mortgage banker is confused with a mortgage broker even though there is a significant difference between the two. A mortgage broker acts as a "go between" or intermediary between a person or company that needs financing for a mortgage loan and a lender who has money available to finance the loan. The broker does not actually lend money. That is, the mortgage broker only brings the lender and borrower together whereas the banker makes the loan happen.
A mortgage banker is not a bank and therefore is not required to follow US state and federal laws that regulate the banking industry. Instead, this industry is generally regulated through the department of banking or real estate, and, in the US, each state has its own set of laws and regulations to which it must adhere. Many states require that mortgage bankers be licensed in the state where they do business.
When someone applies for a mortgage, the banker is responsible for finding a source of money, approving the loan for a particular borrower, and finalizing the transaction, which is also referred to as closing the loan. One of the primary advantages of using a banker over a broker is that certain fees such as the broker’s fee can be avoided by dealing directly with the source of funding. In this way, a mortgage banker usually helps speed up the process by eliminating the middleman. On the other hand, the ability to comparison shop is eliminated because mortgage bankers usually only represent one one lender. Borrowers can overcome this limitation, however, if they choose to deal with several bankers at once.
Before someone selects a mortgage banker, he or she should check with the state's banking department to see if that banker has received consumer complaints and whether the entity is properly licensed, if the state requires that. The Better Business Bureau is also a good resource to check for complaints.