What are the 4 types of Mortgage Providers?
1. Mortgage Bankers
Mortgage Bankers are lenders that are large enough to originate loans and create pools of loans, which are then sold directly to Fannie Mae, Freddie Mac, Ginnie Mae, jumbo loan investors, and others. Any company that does this is a mortgage banker.
Some companies don't sell directly to those major investors but sell their loans to mortgage bankers. They often refer to themselves as mortgage bankers as well. Since they are engaging in the selling of loans, there is some justification for using this label. The point is that you cannot reliably determine the size or strength of a particular lender based on whether they identify themselves as a mortgage banker.
2. Portfolio Lenders
An institution that lends its own money and originates loans for itself is called a portfolio lender. This is because they are lending for their own portfolio of loans and are not worried about being able to sell them immediately on the secondary market. Because of this, they don't have to obey Fannie/Freddie’s guidelines and can create their own rules for determining creditworthiness. Usually, these institutions are larger banks and savings & loans.
Quite often only a portion of their loan programs are a portfolio product. If they are offering fixed-rate loans or government loans, they are certainly engaging in mortgage banking as well as portfolio lending.
3. Direct Lenders
Lenders are direct lenders if they fund their own loans. A direct lender can range anywhere from the biggest to the very tiniest ones. Banks and savings & loans obviously have deposits with which they can fund loans, but they usually use warehouse lines of credit for drawing the money to fund the loans. Smaller institutions also have warehouse lines of credit from which they draw money to fund loans.
Direct lenders usually fit into the category of mortgage bankers or portfolio lenders, but not always.
4. Mortgage Brokers
Mortgage Brokers are companies that originate loans with the intention of brokering them to lending institutions. A broker has established relationships with these companies. Underwriting and funding take place at larger institutions. Many mortgage brokers are also correspondents.
Mortgage brokers deal with lending institutions that have a wholesale loan department. The broker then adds on his fee. The result for the borrower is that the loan costs about the same as if he obtained a loan directly from a retail branch of the wholesale lender.
Banks and savings & loans usually operate as portfolio lenders, mortgage bankers, or some combination of both.
In choosing a mortgage professional you need to partner with a professional that will give you the time and care you deserve. Fees and rates are scrutinized by the industry affording you more protection than ever. Like shopping for anything else you want to compare. Go with your gut. Find a direct lender and borrower directly from the source. You need individualized attention; not just passed off from department to department.
Written by Patricia Eubanks, Vice President