Mortgage Deals -- from Costco?

Government Giants buy loans, set the standards.

Before the 2008 Financial Crisis, private lenders dominated the mortgage market. They approved and closed loans, sold some of their inventory to Fannie Mae and Freddie Mac, held a portion in their own investment portfolios, and packaged the remainder in Mortgage-Backed Securities sold to investors. The private markets all but disappeared ten years ago. In 2019, mortgage bankers are usually mortgage brokers, closing loans to be sold to Fannie Mae, Freddie Mac and HUD's FHA/VA program, consistent with published guidelines. Access to a reliable purchaser of loans has eliminated the need for mortgage brokers to have the financial capacity to hold a mortgage portfolio. 

As high-speed internet use proliferated and smartphones became available to most Americans, a new type of independent loan broker has flourished. In 2018, Quicken took the title of largest retail mortgage originator in the US, eclipsing Wells Fargo, Chase and Bank of America, helped by features such as Quicken's online learning center. Another online lender, First Choice Loan Services, has affiliated with Costco; with a phone call, Costco members can apply for a loan with a lender fee cap. Zillow has added a mortgage page to its website, so you can browse for real estate and discover financing options.

Online learning tools and broader availability of mortgage quotes have de-mystified the mortgage application process. What has been lost in the process in the sense of building a relationship with a bank. The mortgage loan you close will be sent to a third-party servicer that knows you only as an account number on the computer screen. To hold on to relationship banking, check out the smaller institutions that participate in the Federal Home Loan Bank Mortgage Partnership Finance program. This small but growing program gives FHLB members the flexibility to keep some of the income from the loans they close. Although servicing will be handled by a third party, a connection to your overall relationship will be retained.

Finally, dependence on government loan programs brings in the uncertainty of funding delays later this year. Federal debt has hit its statutory limit, and if Congress does not pass an increase before Treasury uses up its available interim measures, we may face a government shutdown or restrictions for funding specified programs. Be prepared, but hope this is avoided.