There are different types of mortgage lenders, so if you are involved in the mortgage industry, then it’s important that you understand the differences. Here’s a brief overview to provide clarification:
Mortgage Lenders
Institutions such as credit unions, commercial banks, and mortgage bankers fall within this category. Credit unions, savings & loans, and banks use certificates of deposit and savings accounts to gather funds from their customers. Then, the money that is gathered can be loaned out to other customers. At all times, the loans must be either held in a portfolio by the institution, or they can be sold to secondary market investors.
On the other hand, mortgage bankers gain access to funds by turning to the secondary mortgage market to sell their loans. These loans are sold very quickly after they are funded.
Mortgage Brokers
About 10% of all loans are generated by mortgage brokers, who offer many different choices when it comes to loan programs. Brokers can access a variety of lenders, and they work in the capacity where they help the consumer to make the loan selection process and fill out the application, and then it is passed along to the lender who will fund the mortgage.
If your loan is rejected, then the broker can quickly turn to a different lender in order to get the loan closed. They aren’t paid on the transaction until the loan actually closes, so they are motivated to find a lender who will take the loan.
If you compare the differences between mortgage brokers and mortgage lenders, you will see that the main distinction is the fact that brokers don’t actually make the loan, so they don’t have the final decision in whether you are extended a loan. Instead of lending the funds, they are working as the “middle-man” to assist the process.
Correspondent Lenders
A newer type of mortgage loan provider is known as a correspondent lender. The main distinction with a correspondent lender is the fact that they can make the decision about whether the loan is extended, because it is funded with their own money. But, right after the loan closes, the correspondent will turn around and sell it to another investing lender. This is a business relationship established between the correspondent and the investor before the transaction was completed.
One advantage to working with a correspondent lender is that they often have multiple business relationships established, which means that you are able to look at multiple options in order to help you find the lowest interest rate available to you.
As you can see, there are some differences between the types of institutions that you may choose to work with. Regardless of the type of institution that you choose, it is important that you make sure there are not complaints registered with the Better Business Bureau (BBB) and/or the federal or state regulators.
If you have additional questions about the distinction between being a wholesale or correspondent lender relationships, please feel free to contact Dave directly or call (303) 520-0004.
