What Is the Difference Between a Mortgage Bank and a Correspondent Lender?
There are three main types of mortgage lenders. Mortgage brokers enter into agreements with multiple lenders to sell their products to the public. Brokers do not lend their own money; they only arrange loans for other lending institutions. Correspondent lenders are typically brokers who offer loans through their own lines of credit. The brokers obtain these lines of credit through the companies they do the most business with. Banks also provide mortgages to their clients.
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Advantages of Using a Correspondent Lender
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Correspondent lenders usually have multiple loan programs available through the different banks they have agreements with. Your loan documents will show if the initial lender is a correspondent lender; the loan will be sold to another company soon thereafter. Fortunately, it is against federal law for the company that purchases your loan to change the terms of the loan. Correspondent lenders offer more programs than banks that are restricted to their own programs only.
Advantages of Using a Bank
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Banks provide correspondent lenders with their lines of credit. Because they are providing the capital to their competition, banks make the programs that the correspondent lenders have slightly less competitive than what the bank could offer. The disadvantage is the bank can only lend its own products. Most banks do not offer other banks loan programs as does a correspondent lender. Banks also have the option of keeping their loans and can be more flexible than other lenders because of this.
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Mortgage Sales and Transfers
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Mortgage loans are commodities that are traded just like gold, silver and oil. Even the largest banks sell loans to Fannie Mae and Freddie Mac, the nation's two largest mortgage investors. Fannie Mae and Freddie Mac only purchase loans; they do not originate loans for the public. The mortgage payments are not made to the investors; instead, the lenders receive the payments and provide the customer service in exchange for a servicing premium.
Making a Choice
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Ultimately, it doesn't matter as much what type of company originates your loan. Concentrate on obtaining quotes from all types of lenders and negotiate the terms of the loan once you do. The loan officer and originating company will only be involved until your loan closes and funds. Even if you close with the largest bank in America, you will deal with the customer service department for any issues after closing, not the loan officer or branch.
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