When it comes to residential mortgage lending, most borrowers encounter three types of lenders: commercial banks, mortgage banks, and mortgage brokers. Each plays a different role in the mortgage industry, and understanding how they operate can make a big difference in choosing the right path for your home financing.
Some of the biggest names in commercial banking include Wells Fargo, Bank of America, JPMorgan Chase, U.S. Bank, and PNC Bank. On the mortgage banking side, companies such as Rocket Mortgage, United Wholesale Mortgage, CrossCountry Mortgage, Fairway Independent Mortgage, Guild Mortgage, Guaranteed Rate, and American Pacific Mortgage dominate a large share of the market.
As a mortgage advisor, I often get asked about the differences between these types of institutions. In this post, I’ll break down the pros and cons of each, and explain why the distinctions matter to homebuyers and real estate professionals alike.
Commercial Banks
Commercial banks and credit unions do far more than just mortgages. They provide checking and savings accounts, auto loans, credit lines, business loans, and a wide range of financial services. Because they’re heavily regulated and bureaucratic, their operations often move slower than specialized mortgage banks.
One of their key advantages is their cost of funds. Since they rely on customer deposits and interbank borrowing, they often have access to cheaper capital. This can allow them to offer competitive rates, especially for jumbo loans and private banking clients.
Advantages of commercial banks include:
- Lower cost of funds, which can sometimes translate into lower interest rates.
- Access to Community Reinvestment Act (CRA) loans and special first-time buyer programs not always available elsewhere.
- The ability to keep loans in their own portfolio, even if they don’t fit conventional guidelines.
- Strong brand recognition, which gives borrowers confidence in working with large institutions.
Disadvantages of commercial banks include:
- Slower closing timelines due to layers of bureaucracy. While a mortgage bank may close in 12 days, a large commercial bank usually cannot.
- Higher rates on conforming, FHA, and VA loans, since mortgage banks are often more efficient with these products. Some commercial banks don’t even offer FHA or VA financing.
- Appraisal challenges, as many rely on nationwide appraisal management companies that may lack local expertise.
Mortgage Banks
Mortgage banks focus exclusively on originating and funding home loans. They don’t provide checking accounts, auto loans, or traditional banking services. Instead, they operate on warehouse lines of credit and sell nearly every loan they close to the secondary market within a few weeks.
This specialized model allows mortgage banks to move much faster and provide a broader range of products than commercial banks.
Advantages of mortgage banks include:
- Faster closings, thanks to less bureaucracy and more efficient processes.
- A wide variety of loan programs, including FHA, VA, and non-QM products like DSCR and bank-statement loans.
- Competitive rates on conforming and government-backed loans due to their streamlined structure.
Disadvantages of mortgage banks include:
- Higher funding costs, since they don’t have customer deposits to draw from.
- Limited access to government-backed programs such as CRA loans.
📊 Market Share Note: Today, mortgage banks control nearly 65% of the residential mortgage market, while commercial banks and credit unions hold a little over 35%. Back in 2011, those numbers were reversed, showing how much the mortgage banking sector has grown since the financial crisis.
Mortgage Brokers
Mortgage brokers act as intermediaries. They don’t fund loans themselves but instead connect borrowers to lenders who underwrite and close the loans. They can shop rates and terms across different mortgage banks, which can be an advantage in some scenarios.
Advantages of mortgage brokers include:
- Access to multiple lenders, allowing them to compare rates and products on behalf of their clients.
- Very low overhead, which sometimes translates to lower borrower costs.
Disadvantages of mortgage brokers include:
- Less control over the process, since they depend on third parties for underwriting and funding.
- Limited access to specialized programs, jumbo financing, or direct relationships with major banks.
- Appraisal restrictions, as they often must use large national appraisal management companies.
This lack of control is one reason many professionals choose to operate as direct mortgage bankers instead of brokers, since it allows for faster closings, more flexible loan options, and greater consistency.
Final Thoughts
For homebuyers, understanding the differences between commercial banks, mortgage banks, and mortgage brokers is crucial. Each option has unique strengths and weaknesses, and the best fit depends on the borrower’s goals, timeline, and loan type.
My focus is on helping clients navigate these choices and ensuring they receive the most competitive financing possible. By understanding how each type of lender operates, borrowers and real estate professionals can make smarter decisions and move through the mortgage process with greater confidence.