Size Matters: Little Bank beats Big Bank

In the last 9 months or so I've been watching a disturbing trend become a stark reality.  Larger banks are actively pursuing new purchases and do not seem to have the manpower to process them all.  Three of my last five transactions were with smaller lenders who ended up with the loan when the larger bank could not execute. How is this possible? Let's look at some factors.

Loyalty
Giant, monster mega banks (as Clark Howard calls them) originate the bulk of their loan refinances and new purchases from their current account holders.  People automatically feel comfortable dealing with their current financial institution because they figure that since their lender has all of their personal info already, they can trust them.  Also, another VERY common misconception is that since you bank with a financial institution for a number of years, you have a better chance of being approved or it makes the underwriting process simple. Sadly, both of these couldn't be further from the truth.  Large banks show no special treatment nor do they take into account the banking history you have with them when it comes to processing and approving a loan.  I've found this treatment to be exclusive to small, community banks and credit unions where you actually get perks for being a member and not just a customer.

Size Matters
Since the housing market crash and the new banking regulations were passed in 2009, larger banks began to put smaller players out of business and purchased some of the smaller competitors, and hired their loan officers, in the process.  The big banks became more powerful, but when as the housing market roared back, they were unable to provide the processing efficiency needed to accommodate of the influx of loans.  Since larger banks are always more strict, they used to broker out less attractive loans (sub 680 credit scores) to other banks/mortgage brokers to get them done.  Without those smaller banks/brokers being there to field those deals, the banks now have way more than they can handle.  Instead of hiring more employees, they seem to prefer to hold loans hostage for 45-90 days while smaller bank's and mortgage brokers are able to close loans in 8-18 days!!! This is fact, not fiction. I have a list of them that I use daily on my website. Don't let a giant, monster mega bank tell you that you cannot do a loan (FHA/VA included) elsewhere with competitive rates & pricing in under 30 days because it is simply not true.

Times Have Changed---AGAIN!
In the past mortgage brokers were synonymous with mortgage fraud, high yield spreads, higher closing costs, and higher interest rates. There was a time that mortgage brokers couldn't compete with a direct lender's rates/closing costs. But since the banking regulations of 2009 helped weed out all of the bad seeds, the mortgage brokers that survived are now reaping the harvest of stalled and even declined loans from larger banks and closing them in a week or two.  Sadly, I don't see this trend ending anytime soon unless the larger banks hire more processors/underwriters to handle the growing load of purchases, refi's, short sales, and loan modifications that they have on their plates. Larger banks also need to loosen the restrictions a tad to help get loans approved.  Large banks have become overly strict, since these regulations were passed, and seemed to have now lost the little common sense they had left.