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 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. |
