Types of Mortgage
Lenders
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P
orfolio lenders
A portfolio lender is institution which lends their own money and
originates loans in their own name. They are lending for their own portfolio of
loans and not worried about being able to immediately sell them on the
secondary market. Because of this, they don't have to obey Fannie Mae and Freddie
Mac (called GSE’s) guidelines. A portfolio lender can create unique sets of
rules for determining the soundness and pricing of a loan.
Often only a portion of their loan programs are
"portfolio" product. If they are offering fixed rate loans or
government loans, they are certainly engaging in mortgage banking as well as
portfolio lending.
Once a borrower has made the payments on a portfolio loan for over
a year without any late payments, the loan is considered to be
"seasoned." Once a loan has a track history of timely payments it
becomes marketable, even if it does not meet Freddie/Fannie guidelines it might be sold in a group to an investor.
Or these may be held if the rates are a bit higher, there is a small margin of
profitability in holding the servicing. If the lender can sell off loans for a
profit (say servicer offers .49% today, they are often grouped into bundles or
tranches then sold for a profit to an institutional servicer or investor. The
loans are grouped into a Trust that a number of investors may “buy” as a group
entity hoping the higher than market rates will not get paid off for a
predetermined estimation of time (say they think loans at 5.5% with certain
traits: location, FICO, borrower type, age of borrower, just about any set of
thousands of details that analysts can rate a bucket).They “guess” the loan will
remain in the bucket paying for five more years.
Selling these "seasoned" loans frees up more cash for
the "portfolio" lender to make more loans, which is another way that
portfolio lenders engage in mortgage banking. If the loans are sold, they are
packaged into pools and sold on the secondary market. You will not even know
your loan is sold because, quite likely, you will still make your loan payments
to the same lender, which has now become your "servicer."
Lenders are considered to be direct lenders if they fund their own
loans. A "direct lender" can range anywhere from the biggest lender
to a very tiny one. Banks and savings & loans obviously have deposits they
can use to fund loans with, but they usually use "warehouse lines of
credit" from which they draw the money to fund the loans. Smaller
institutions also have warehouse lines of credit from which they draw money to
fund loans. Smaller institutions obviously cannot fund big production lumps
that always occur when rates are volatile.
Direct lenders usually fit into the category of mortgage bankers
or portfolio lenders, but not always.
One way you used to be able to distinguish a direct lender was
from the fact that the loan documents were drawn up in their name, but this is
no longer the case. Even the tiniest mortgage broker can make arrangements to
fund loans in their own name.
Direct
lenders are generally companies that underwrite a loan themselves. There are
two types of direct lenders. There are about 3200 lenders who call themselves
direct but in fact are too small, and undercapitalized to actually fund much
direct
Type
One: The difference between a direct lender and any other type of mortgage
provider, is that they are more nimble. What makes a direct lender different is
the fact that they generally have a very large line of credit with another
financial institution which allows them to write large checks for your
mortgage. However, once the mortgages closed, they will always sell the loan
off to someone else to service the loan and collect payments on the loan.
Type
Two Direct Bankers who can both portfolio the loans the close and sell them.
There are only 100 super funded institutions that can do this. This group is
going to be the survivors and drivers when our Federal Government starts to
wind down the GSE’s
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Correspondent is usually a term that refers to a company which
originates and closes loans in their own name, then instead of selling those
loans in pools. They sell them individually to a larger lender, called a
sponsor. The sponsor acts as the mortgage banker, re-selling the loan to Ginnie
Mae, Fannie Mae, or Freddie Mac as part of a pool, or may hold the loans as
they follow market trends.
Mortgage brokers deal with lending institutions that have a
wholesale loan department.
It is almost like being a mortgage broker, except that there is
usually a relationship between the correspondent and their sponsor.
Credit Unions sometimes operate as correspondents, although a
large one could act as a portfolio lender or a mortgage banker. They often do not
sell loans at all.
Bank
anks and savings & loans usually operate as portfolio
lenders, mortgage bankers, or some combination of both. A bank is
a highly regulated institution that does a variety of things. They offer auto
loans, credit cards, a checking or savings account, and a home loan, among
other things. A bank is generally a one-stop shop for all things financial.
Bank employees even the loan officers are not licensed and report to the bank.
Loan officers as bank employees are part of a bureaucracy that expects them to
sell you a checking account, use their insurance division and open the safe
deposit box. Loan officers are not required to be licensed.
Banks
tend to drop behind the Wizard’s screen when it comes to deciphering how they
handle mortgages. That’s because some banks will service your home loan and own
the rights to repayments for the life of the loan, while other banks will sell
your loan to a third-party after you sign the paperwork. Most financial
institutions that offer mortgages sell them to third parties. That said, some
banks will both service some loans and sell others to third parties.
Mortgage
brokers
Mortgage
brokers are companies, or individuals, who have access to a variety of loan
programs through various financial institutions. I actually worked as a
mortgage broker for a period of time and we could access mortgages through all
of the major banks, direct lenders, and any other lending institution nearby,
with the exception of credit unions. The benefit of a mortgage broker is that,
assuming you trust yours, he can do the shopping for you with all of the
financial institutions he works with.
The
other disadvantage is that although they have access to many different programs
from many different lending institutions, they are a middle man, which means
they will charge a fee for their service. There is nothing wrong with this
inherently, in fact, the extra shopping a mortgage broker can do for you may
get you the best deal on your mortgage; it’s just important to keep in mind
that they do charge a fee for their services.
Internet lenders
Mortgage lenders have proliferated on the Internet in recent years, offering
fast, easy loans at competitive rates. Some are online channels of
brick-and-mortar financial institutions or mortgage brokers, others are
Internet-based banks or brokers. Sometimes referred to as Consumer Direct.
Where consumer does all the work. Fine
for a cookie cutter wage earner refinancing their only one single family house.
Not good for self employed, complex, condominiums, larger loans above $417000,
not good for a purchase can’t close on time, often rate lock is not honored.
© © 2012 W.J. Bradley Mortgage Capital, LLC. 6465 Greenwood Plaza Blvd, Suite 500, Centennial, CO 80111 Phone #303-825-5670. NMLS ID 3233. Trade/service marks are the property of W.J. Bradley Mortgage Capital, LLC. This is not a commitment to lend. Restrictions apply. All rights reserved. Some products may not be available in all states. WJB is not acting on behalf