DCI Mortgage Banker and Broker

A Mortgage Broker is traditionally known as a person or entity that negotiates loans on behalf of borrowers with banks, private lenders, and other types of institutions. Although mortgage brokers have many different focuses, one key aspect stays the same: they have access to relationships with lenders. The true purpose of a mortgage broker has always been to increase a borrower's loan options, whether it be better rates, more significant loan amounts, or loans thought to be unavailable.

Mortgage Bankers are a more recent type of mortgage originator. A mortgage banker is a non-depository entity that makes loans with their own funds. Additionally, many mortgage bankers have traditionally sold their loans in secondary markets to access more capital and reduce risk, thus retaining the shopping ability of a Broker, by shopping the sales of loans to multiple investors. The need for mortgage bankers came along when the mortgage industry moved away from funding through only traditional depository banks for access to Direct Capital Investment markets.

History of Mortgage Bankers and Brokers

In the late 1800s, mortgage brokers emerged in large cities to link private investors and developers with construction projects that banks wouldn't fund. Later, in the early 1900s, mortgage brokers were still sparse and were mainly relationship-based. Mortgage brokers would charge a fee to help borrowers access the right bank relationship in town to reduce a borrower's rate, maximize their loan amount, and or access loans that borrowers couldn't find elsewhere. It was a very case-by-case approach; there were no loan programs like today.

After the great depression, the creation of government institutions that backed mortgages, the Homeowners Loan Corporation, The FHA, and Fannie Mae helped increase the number of loan originations by increasing the amount of mortgage capital banks had access to. This beginning of the secondary mortgage market gave birth to the implementation of loan programs, which streamlined the approval process and gave the industry clarity as to who was lendable.

Later, in the 1960's Fannie Mae became privatized, and Freddie Mac was created along with Gennie Mae, which invented the mortgage-backed security, moving the mortgage industry from being depository financed to capital market financed, and thus creating the role of the Mortgage Banker. The birth of the secondary mortgage market also included the first REITS and Insurance Companies that purchased loans from Commercial Mortgage Bankers. The arrival of Mortgage Bankers allowed the industry to scale capacity for originations further now that real estate transactions were not dependent on depository banks to fund mortgages. Mortgage Brokers could broker to Mortgage Bankers or become Mortgage Bankers.