Types of Mortgage Lenders
Mortgage Bankers are essentially lenders that originate and sell their loans in pools to investors such as Freddie Mac and Fannie Mae, as well as to private investors. If they are non-depository institutions, they finance the loans with warehouse lines of credit, but quickly sell them off on the secondary market so they can originate new loans. Countrywide and Wells Fargo Home Mortgage are two are the largest examples, though much smaller operations also share this distinction.
Portfolio Lenders originate and fund their own loans, and may service them for the entire life of the loan. Because they typically offer deposit accounts to consumers, they are able to hold onto the loans they fund. They are also able to offer more flexibility in loan products and programs because they don’t need to adhere to the guidelines of secondary market buyers. That means unique program guidelines and special offerings that other banks can’t offer. Once their loans are serviced and paid for on time for at least a year, they are considered “seasoned” and can be sold on the secondary market more easily. Washington Mutual is an example of a portfolio lender.
Correspondents originate and fund loans in their own name, then sell them off to larger lenders, who in turn service them, or sell them on the secondary market. The loans can be underwritten by the correspondent, but the loan programs are usually based on terms approved by the larger lender, or “sponsor”. Correspondents usually have a array of products from different sponsors, and act as an extension for those larger lenders. In other words, a small correspondent lender may resell Wells Fargo products and/or Countrywide products under their own name.
A direct lender is simply a bank or lender that works directly with a homeowner, with no need for a middleman or broker. Mortgage bankers and portfolio lenders usually fall under this category if they have retail operations. Examples include Washington Mutual, Wells Fargo and Bank of America, though smaller entities could share this distinction as well.
Wholesale Lenders are similar to mortgage bankers in that they originate and service loans, and sell them on the secondary market. Most mortgage bankers have wholesale and retail divisions, although wholesale lenders can be independent entities as well.
A wholesale lender works with independent brokers and loan officers to originate loans. Brokers and loan officers work on the retail end with borrowers, and once they secure a deal, they send that deal to a wholesale lender for underwriting and processing. The wholesale lender will fund the loan, and usually sell it on the secondary market within a month or two. Wholesale lenders have lower rates than retail lenders because brokers can manipulate the rate based on their yield-spread-premium.
Mortgage Brokers work independently with banks and lenders, and borrowers, and need to be licensed. Their job is to contact borrowers and bring in potential deals. Once they have a deal, they can send it to a mortgage bank or a wholesale lender. They will need to process the loan once it is approved, and can negotiate pricing with the bank or lender to receive a rebate. Mortgage brokers will form partnerships with realtors to ensure a steady stream of new business.
Loan officers work under brokers, and basically do the same thing a broker would do, except they don’t need to be licensed. They will solicit borrowers using direct mail, telemarketing, and similar practices. Brokers usually equip them with office supplies and leads, and each take a split of the total commission. They don’t need any experience, so take caution when one solicits you.