Types of Mortgage Lenders
Thinking about the loan? It can be mind-boggling. Let us help! We are precluded by law from receiving any funds from lenders. This law was enacted to ensure there is no conflict of interest between lenders and agents. We agree with the concept and point of law. So, you can use whomever you want for your loan.
HOWEVER - We prefer that you use a lender with whom we are familiar. Why? Because we have to work directly with your lender to ensure your deal comes together just the right way, at just the right time for you. If we don't know your lender, we are working with someone new to us and don't know the ins and outs of how they work. We don't know their staff, their phone numbers or who's in charge of what. It just makes things more difficult for us and for you. As a team, your agent and lender are working together with your goals in mind.
There's another important concern. We know our lenders are honest and we have a commitment from them to work with us. If they say that they can provide certain terms, we know they can do it. Unfortunately, we've run into some lenders that are less than honest. We have had lenders promise to provide a loan under terms that mysteriously change at the last minute, making it impossible for them to provide what they offered, holding up your purchase. This creates terrible problems for you and can jeopardize your earnest money. If we are working with someone we know, this won't happen.
We have a simple policy that adds security to your deal. Regardless of the lender you choose, a loan application wil be collected by our lender as back up to be kept on file, just in case things start to fall apart and we need an alternative lender. You know, someone to pick up the pieces! Fair enough?
There are a number of types of primary mortgage lenders that you may encounter when shopping for your mortgage loan. To give you a better understanding of these service providers, a brief explanation is provided below.
There's one other thing you should know about lenders. Their services and prices are not all the same. You have to shop carefully. We've worked hard to create a team of dedicated professionals who work closely with us to provide our clients the finest possible service. Check with us before making a final decision on a loan. We may be able to help you save hundreds, even thousands of dollars.
Mortgage Bankers typically originate loans and then sell these loans to the secondary mortgage market shortly after funding. (The mortgage banker may or may not sell the servicing of the loan.) Often mortgage bankers have attractive loan programs and rates.
Portfolio Lenders make loans with the institution's own funds and keep the loan on the institutions books rather than immediately selling it to the secondary mortgage market. Many institutions engage in mortgage banking as well as portfolio lending.
Since portfolio lenders fund the loans, they are not confined to Freddie Mac/Fannie Mae guidelines. After a portfolio loan has reached its one year anniversary date without any late payments, it is considered seasoned and may be sold to the secondary mortgage market even if it does not meet Freddie Mac/Fannie Mae guidelines.
If a portfolio loan is sold to the secondary mortgage market, the portfolio lender may continue to service the loan.
Direct Lenders fund their own loans. Direct lenders usually fall into the category of a mortgage banker or portfolio lender.
Correspondents act on behalf of one or several lenders (sponsors) throughout the origination and closing. The loan is usually underwritten by the sponsor. The correspondent acts as the lenders agent. The correspondent may also service the loan for the lender.
Mortgage Brokers work as intermediaries between lenders and borrowers. Mortgage brokers have access to a number of lenders and often offer the most variety in loan programs. Brokers assist the borrower in filling out the loan application, obtaining the credit report and appraisal, selecting a loan program and finding a lender to fund the loan. In general, brokers do not make the decision to extend the loan and do not fund the loan.
The mortgage broker may be paid by the borrower or the lender. Payment to the broker is typically included in the closing costs as either fees or points.
Wholesale Lenders underwrite and fund mortgage loans. Wholesale lenders may also service the loan payments and ensure the loans compliance with underwriting guidelines.
Banks, Credit Unions and Savings & Loans use funds gathered from their customers through checking, savings and certificates of deposit to make mortgage loans. The institution may hold the loan in its portfolio or sell it to a secondary mortgage market.
Secondary Mortgage Market
When you apply for a home mortgage, you may be under the impression that the mortgage lender will be servicing the loan until it is paid off. This may not be the case. It is common practice for the mortgage loan to be bought and sold to a secondary mortgage market investor, sometimes more than once in the life of a loan.
These transactions will not affect your mortgage amount or your mortgage payment. The secondary mortgage market is comprised of investors like Fannie Mae and Freddie Mac. Selling loans to the secondary mortgage market provides primary lenders with funds needed to issue new mortgage loans.