Bank related mortgage- Bank funds loans from bank funds and has loans securitized in a pool of mortgage backed securities in a sale to Fannie Mae or Freddie Mac to replenish funds to bank. Banks have commonly known names so many people use them for their mortgage lending needs. The problem is that many banks do not have great pay plans so they take on a lot of new loan officers or they take on seasoned loan officers who are skipping over to that bank from another bank with a lower pay plan thus they don't stay long. This is not the case everywhere. There are many good loan originators working for banks. (So, good bank l.o.'s on a good pay plan don't rip me for this.)
Correspondent lender (Commonly Termed Mortgage Banker)- Funds loan through what is called a "warehouse bank". Has a period of time to sell the loan off the "warehouse line" or buy the loan and service the loan. Basically, a large line of credit is used to fund loans. Loans are sold or serviced after this. If you are not a bank and you fund mortgage loans on your own, you are probably a mortgage banker. Correspondent lenders make what is called SRP (servicing released premiums) for selling the loan in the secondary market. The speed of the process and the pricing will usually be better with a correspondent lender than a broker as a company. The correspondent lender usually puts up at least a couple of million dollars to access warehouse bank funding lines. Brokers usually can't afford to go this route. The bank rewards the correspondent lender with better pricing because of this. Not that it matters, but this is the area of mortgage lending I am in.
Mortgage broker- Finds the most competitive bank (rate and/or underwriting turn time) and submits file to them. Bank underwrites and funds loan. Because in the past mortgage brokers could sign up with subprime lenders, Alt-A lenders, and conforming lenders, they had a wide variety of offerings that individual banks which were limited to their own products could not compete with. This is why the majority of mortgage loans were done by brokers. The tables have turned recently, though. Now that brokers don't have the many product offerings they once had, they will find it difficult to compete with correspondents who can offer better price and service because they are not bound by they lenders underwriting their file. I know some excellent mortgage brokers who will be able to accomplish this because they understand the best rate on the wrong program for the client's situation is no good. They are professional advisers, not rate auctioneers. Many brokers cannot afford the $63,000 net worth requirement to get FHA approved. If the broker doesn't do FHA loans, chances are they don't have $63,000 or they are still holding on to hope that subprime lending will come back (Newsflash- It won't). Do you want to do business with someone in the lending business that is this thinly capitalized? Make sure whoever you do business with is FHA approved or in the process of receiving approval (not just VA approved- that only costs $100 to get approved) for this reason and the fact that conforming lending is a channel that is getting harder and harder to get borrowers approved through. Since the stimulus package was approved, my area's FHA limit is now $271,050. 75% of my business is FHA now (Although I've used FHA financing since the mid-1990's for 40% of my business, FHA has had a small market share in the overall lending market until recently). I can't imagine how much longer a broker without this approval can stay in business.
As far as a lender having better lending authority than a broker, this is simply not the case. Very few lenders are going to the bank vault and loaning money to service a hometown loan based on a hometown lending decision. If they are, they will have to price risk into the loan and they will not be able to compete. Almost all lenders and brokers submit their files through one of two automated underwriting platforms: Fannie Mae's Desktop Underwriter- DU (Desktop Originator- DO for brokers) or Freddie Mac's Loan Prospector (LP). Some investors have their own proprietary u/w system like Countrywide CLUES/CLOUT system, Chase Zippy, etc. but those systems are all built on infrastructure bases provided by Fannie or Freddie's system. FHA loans are also run through DU or LP for decisions through a system called FHA's Total Scorecard. The findings from these automated underwriting systems must be followed whether you are a broker or a lender. Otherwise, the loan will not be allowed to be purchased by one of the agencies (Fannie or Freddie) or insured through FHA. The only time a lender can go outside of this where a broker cannot is when they offer a portfolio loan. This is a loan they will service in their lending portfolio. Although lenders will sometimes portfolio a loan, the majority (like 99% in this market) will either be an agency loan (often called conforming, as in conforming to Fannie Mae or Freddie Mac guidelines) or they will be a government loan (FHA or VA). Therefore, the underwriting decisions will almost always be the same broker or lender. The service and professionalism of a good loan officer working for a good company is the edge to look for.
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