You've seen the advertisements and heard the radio commercials. "Here at XYZ Mortgage we compare rates with over 100 lenders" or "Our company has access to over 300 mortgage loan companies nationwide!" Pretty impressive, isn't it? 100 lenders? 300 banks? Do you believe all that?

I don't.

Okay, before I get beat up on by mortgage brokers telling me what an idiot I am, let me first say that I cut my eye teeth in the mortgage business as a mortgage broker, way back in the olden days in Southern California. I know what it's like to be a mortgage broker and how a broker operates.

As a young mortgage buck, I remember that same procedure. I too would boast to my potential clients about how many lenders we were signed up with how we could compare everyone's rates. Actually, I don't know exactly how many lenders we were authorized to market for. Probably not 100, but still a lot. Maybe closer to 50 or so. But I learned something very early on in the business: rates aren't that much different between one mortgage lender and another.

They really can't be. After all, the same loan programs from Lender A and Lender B are tied to the very same index. One 30 year fixed rate can't be 7.00 percent while someone else is at 6.00 percent. Can't happen. Well, I guess it could happen but someone would be out of business fairly quick. Lenders have to stay competitive to stay in business, and they all use the same benchmark when pricing similar loans.

In the early stages of my career I truly thought that if I reviewed enough rate sheets from different lenders I would find the one mortgage company that would get me all the business I could handle. I thought that I would be able to discover some obscure mortgage company with a not-so-well-known name that offered interest rates .5 percent below everyone else and if I could just find that company I would be rich.

Soon however, all the rate sheets looked the same. I would stand by the fax machine every morning and wait for all the rate quotes, then sit at my desk and pore over each and every rate combination I could think of -- thinking I was looking for buried treasure. But I was wrong. Rarely would I find a lender that was hands-down the absolute rate-leader. Sure, on occasion a lender would need to beef up their loan production so they'd offer maybe an eighth percent better rate, meaning I could make another $1,000 on a $200,000 loan, but nothing like I had originally anticipated.

So why do mortgage brokers have so many lenders? Probably just to say they have 100 lenders at their disposal. The problem is, all those lenders are selling the very same product at an almost identical price. From a practical perspective, there's no reason to have 100 lenders. Or 20 for that matter.

And if you ask, a mortgage broker will most likely only use two or maybe three lenders at any one time for any one product A broker will have a mortgage company he uses for fixed conventional product and he might have another couple of lenders he uses for government loans and still a few more for sub prime offerings. But a broker doesn't need 100 lenders for any of this. He needs 100 lenders to tell you that he has 100 lenders. But thinking that he's going to take your loan application and submit your loan scenario to every single one of those entities is a mistake. He's not. There's no need to.

Published: December 2, 2005

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, a veteran Mortgage Banker, successful Real Estate Consultant and author of Your Guide to VA Loans, Mortgages 101: Quick Answers to Over 250 Critical Questions About Your Home Loan, Who Says You Can't Buy a Home!, and Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You, is a former columnist and Contributing Editor with San Diego-based Mortgage Originator Magazine. Reed is President of CD Reed Mortgage Bankers, Austin, TX and is a Past President of the Austin Mortgage Bankers Association.