You'll run into three types of financial institutions when you go shopping for a home loan: mortgage bankers, mortgage brokers and correspondent lenders. Any one of the three can get you a mortgage. The difference is in how they fund the loan and what they do with the mortgage once it's settled. Correspondent lenders are sort of halfway between bankers and brokers.
Where Correspondents Fit
Mortgage bankers are primary lenders, major banks, savings and loan associations and similar institutions with big deposits that they can lend out. Many make direct loans to home buyers, but they also buy loans from brokers and correspondent lenders. The brokers or correspondent lenders do most of the work in putting the mortgage together and closing the loan.
Correspondents Make Loans
A broker deals with many bankers, shopping among them to find the best rate, then placing the loan with that banker. A correspondent lender makes the initial loan directly, but then sells the mortgage to a primary lender. A correspondent may work with one primary lender or may use several as a primary funding source, using money from the sale to fund other loans.
Correspondent May Service Loans
A correspondent lender may continue to service the loan, that is, to collect the money and pay taxes and insurance, for a fee from the primary lender. The correspondent acts like an extension of the primary lender, but your original mortgage will be in the name of the correspondent lender. It may be transferred into the name of the primary lender after it is sold.
Brokers collect fees from primary lenders and must report these to the buyer when the mortgage is settled. Correspondent lenders don't have to make such disclosure, because they issue the mortgage in their own name. They are required to disclose whether the mortgage may be sold to another lender later but don't have to reveal any financial details of that transaction.
How to Tell
You'll usually know upfront if you're dealing with a broker, because your actual mortgage will be with the primary lender. A few brokers may make initial mortgages in their own name, but correspondent lenders always do. Many smaller credit unions make home loans as correspondents, selling the notes to other lenders once the mortgage is complete. Some banks act like correspondents at times, making mortgages for the bank, but later selling those notes to a larger institution to get cash for more loans.
- The Mortgage Professor: What Is a Correspondent Lender?
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