In order to understand the nature of a correspondent lender, a person needs to understand the other types of mortgage lenders in the market place. Everyone is familiar with banks, credit unions, thrift institutions and savings and loan associations.
However not everyone understands mortgage bankers and mortgage brokers even though they make mortgage loans like the familiar institutions. Add in correspondent lenders and most people would say they never heard of such a lender.
Because you have dealt with banks, savings & loans and credit unions, you know they gather funds from their customers through checking and savings accounts and certificates of deposits. They then use these funds to make loans. It is a very easy process to understand.
These institutions can hold a mortgage loan in their portfolio or they can sell it to secondary market investors. That too is easy to understand.
Mortgage bankers get their funds from several sources. Generally speaking, they put together a line of credit from which they start making their mortgage loans. Once they establish themselves, their funding source becomes their loans they sell into the secondary mortgage market.
In order to keep the doors open, mortgage bankers may retain the servicing on their loans. The dollars they receive for servicing the loans pays overhead and advertising expenses.
Mortgage brokers are probably the best known in the mortgage field. As a group, they generate about 50% of all loans made in the U.S.
They, unlike all of the institutions mentioned above, do not make the decision on whether you get the loan. This is because they are merely brokering the loan to the final lender. All they are doing is assisting you in completing the application and loan selection process.
If one lender turns you down, brokers can quickly place your loan with another lender. Mortgage brokers receive a fee from the borrower or the lender when a loan closes. They have to disclose not only the amount of the fee but who paid it.
Correspondent lenders are similar to mortgage bankers. They not only can decide if they will extend you a loan but they can fund it with their own money. This makes them lenders and as lenders they do not have to disclose rebates like a mortgage broker. They do have to disclose all the other costs associated with the loan.
Because they use your loan to fund other loans, it probably will be sold to another lender called the funding lender. The funding lender is merely in a business relationship with the correspondent lender. If this relationship didn’t exist, you may not have been extended the loan. Correspondent lenders usually do not use just one funding lender. They maintain several sources in order to help the consumer get the loan that is right for him at that point in time. It obviously increases his chance to make more money as well.
Because the lines are not clearly drawn you may not know if you are dealing with a lender or a broker. The easiest way to know is to ask the person if they are acting as a lender or as a broker.
Regardless of the capacity in which the person is acting, only you can decide if the loan presented to you is right for you. Always ask questions about fees and costs and the loan’s terms and conditions. This way, you should find the right loan at the right time.