In the go go '90's mortgage brokers were writing an ever increasing percentage of loans, taking business away from the traditional lenders, the banks and S & L's. Many of us well remember the so called S & L crisis from the 70's when there were unfortunate abuses taking place that sank some major S & L's, principally in the west and southwest where unscrupulous borrowers were playing games creating phony transactions backed by illegitimate appraisals which later lead to a collapse of house prices as the "ponzi scheme" grew to such significant proportions there were no longer any buyers.
S & L's were reformed, appraising licensure then became a matter of state control, so that appraisers were qualified and regulated and things settled down for a while. But along came the new growth industry, mortgage brokerage, middle men and women who arranged loans for any one of hundreds of potential lenders including banks, investment funds, insurance companies etc. The pressure increased, and so they say, became intense during the Clinton administration, to increasingly liberalize lending to make it easier and easier for the financially challenged, to get a mortgage. Lending was on a feeding frenzy, fed in large measure by the mortgage companies, not the traditional banks and S & L's this time around.
So, we all know now what happened most recently. Lending guidelines were so lenient and liberal and in many cases, so predatory with high review rates after very low initial rates expired that many borrows were unable to pay. Couple that with the declining economy, job losses and so forth, and the current mortgage delinquency crisis was launched.
Which leads me back to my primary point: borrow from a reputable LOCAL lending institution. They may not be willing and able to make the marginal high risk loans but then again, perhaps those borrowers should wait anyway, until their financial situation improves and thus their chances of being able to keep the home they ultimately purchase.
Local banks and S & L's being locally based, know the community, work with the local appraisers who are in the best postion to calculate value, do not charge hidden and excess fees like some mortgage companies, and generally can help insure the closing process goes smoothly. Too many times I have heard very angry borrowers showed up at their closing only to learn from the mortgage company that there were unanticipated extra costs and fees and at that point they had no alternative realistically but to close in spite of what felt like deception and failure to disclose. I have never heard of such problems with local area lenders.
Local banks may also be much more willing to modify the terms of a mortgage if a borrower becomes delinguent than would an out of town lender.
Some mortgage brokers are "local" but many borrowers have simply gone "on-line" to find a mortgage. While there are fewer problems with local area mortgage brokers who have been in the trade for years, they do not have much control over the actual lenders or the process of gaining appraisals.
Bottom line, unless there is some extraordinary reason not to, we strongly recommend that you go to the most local bank you can to obtain your mortgage. They are very competitive and many times in the end, even cheaper than mortgage brokers or on line sources.