Different Types of Lenders
Many of us know (or have learned during the course of reading the informative articles on this website) that a mortgage is a type of loan that helps pay for real estate. We know that the source that provides us with this money is given a generic name, like the 'lender.' But who exactly is the lender? What kinds of institutions are we actually borrowing from? Are all lenders the same?
Below is a list, complete with descriptions, of some of the most common types of lenders.
Mortgage Bankers
Mortgage Bankers are lenders big enough to create loans and pools of loans that they sell directly to lending institutions. Examples of lending institutions that buy loans and pools of loans from mortgage bankers include:
Fannie Mae Freddie Mac Ginnie Mae
Any company that assembles, then sells loans, is considered to be a mortgage banker. Mortgage bankers can very significantly when it comes to size. Some mortgage bankers service the loans they originate, but some do not. Most legit mortgage bankers have wholesale lending divisions within their company.
Countrywide Home Loans and Wells Fargo Mortgage are two of the nation's largest mortgage bankers.
Mortgage Brokers
Mortgage Brokers are individuals or companies that unites borrowers and lenders together, then facilitates the loan process between these two parties. The job of the broker is to put borrowers and lenders in contact with each other. If this contact results in a loan, the broker receives a commission, often from both parties.
Basically, a mortgage broker is an intermediary. They are typically hired by prospective borrowers who either don't know much about the lending industry, don't have time to shop around for different types of loans, or both. The mortgage broker does this work for them. In this way, the job of the mortgage broker is analogous to the job of the real estate buyer's agent, who works on behalf of the buyer to shop around for different homes.
A mortgage broker can evaluate different types of mortgages available to you. They can give you insight as to which banks or financial institutions offer the most competitive rates and the terms most compatible with your particular situation.
Be sure to get all the information about the types of mortgages available to you in writing so that you can review it. People who obtain a mortgage through a broker tend to get more specialized mortgages than the standard fifteen or thirty year mortgages that you hear about or read about on the internet. Be sure to read every little detail so that you understand what your signature entails.
Note that when you enlist the services of a mortgage broker, you often have to pay an initial fee or commission once you obtain your mortgage. However, the services of the mortgage broker will likely have saved you money in the long run, so don't despair too much about this little fee!
Mortgage broker companies originate loans in order to broker them to wholesale lending institutions with which they have established relationships.
Wholesale Lenders
Most mortgage bankers and portfolio lenders are also wholesale lenders. Some wholesale lenders have their own retail branches. Others rely exclusively on mortgage brokers for their loans.
Wholesale lenders offer loans to mortgage brokers at a reduced cost than their retail branches offer them to the general public. The mortgage broker adds his or her fee to the loan amount. This means that for the borrower, the loan cost is pretty much the same when he or she gets the loan from a broker as it would have directly from the retail branch of the wholesale lender. The advantage of going with the broker is that, if you are new to the concept of loans and mortgages, a mortgage broker can help you select the right type of loan. More experienced borrowers, however, may opt for borrowing directly from the lender.
Portfolio Lenders
Many banks and large institutions create their own loans. By doing this, these institutions can establish their own guidelines for approving or rejecting loan applications. Otherwise, they would have to follow guidelines suggested by the mortgage bankers. Banks and large institutions have their own portfolio of loan possibilities and do not sell them on a secondary market. Also, like mortgage bankers, they may offer fixed-rate loans and government loans. After the borrowers have been making payments on the loan for a period of time, the loan becomes saleable on the secondary market. The Portfolio Lender may decide to sell a loan in order to make the money available for funding other loans.
Direct Lenders
Direct lenders is a term that applies to any lenders that fund their own loans. This category can include mortgage bankers, portfolio lenders, or small lending companies.
Correspondents
The term Correspondent refers to an institution that originates and funds home loans under its own name, then sells them individually to larger lenders with which they have established relationships. These lenders are called the Correspondent's Sponsors. The Sponsor usually resells the loan to one of the Mortgage Bankers (Ginnie Mae, Fannie Mae or Freddie Mac) as a pool of loans.
Banks or Credit Unions
Plenty of borrowers receive loans from their local banks and/or credit unions. If it is large enough, the bank can also act as a mortgage banker or portfolio lender. Credit unions can do this, too, but they typically act as as correspondents to larger institutions.
