Types of Mortgage Lenders
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.
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 institution's 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 lender's 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 loan's 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 change throughout the life of your loan. 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.