Can a Mortgage Broker Issue a Denial?

When you apply for a mortgage, the lender runs your credit information through a computer program that gives a preliminary sense of whether you qualify for a loan and, if so, whether your credit is good enough for an expedited approval process. If the lender can't get an automated approval, it scrutinizes your application more carefully before giving a green light. "Underwriting" is the term for the credit evaluation, and its purpose is to assess your risk of default.

A mortgage banker is a loan officer who works for a lending institution that funds mortgage loans by lending its own money, money it borrows or money from investors. The lending institution employs the banker to find the best loans for its customers and to serve as a liaison between the lender and the customer throughout the underwriting process. If you meet the lender's preliminary qualifications, the banker issues you a loan pre-approval that you can take with you when you house-shop. The pre-approval proves your ability to finance your purchase. Alternately, a mortgage banker can deny your application for a mortgage loan on behalf of the lender he works for.

A mortgage broker connects borrowers and lenders. Serving as an adviser of sorts, the broker shops for loans to get the borrower a low rate and favorable terms. The broker issues you a pre-qualification letter if she finds lenders who work with borrowers with credit profiles similar to yours. The pre-qualification may prove your ability to finance a home except in the case of a foreclosure -- for that you need a pre-approval from a direct lender. Because brokers don't loan their own money and aren't directly involved in the underwriting process, they can't issue you a loan denial. They can merely notify you of their inability to secure a loan for you.

Although a banker denying your application isn't a huge blow -- it just means you need to try a different bank -- having a broker say you don't qualify for a loan is a major disappointment. But it's not necessarily true. Although brokers have a number of lenders to turn to, they don't have access to some of the largest direct lenders. Several of the nation's biggest mortgage banks, including Citi, Bank of America and Capital One no longer originate mortgage loans through brokers, as of 2012. But they offer many loan programs, including government-backed loans that are easier to qualify for than conventional mortgages. If your broker says she can't help you, contact more or more of these lenders directly to request a pre-approval.