Types of Mortgage Lenders

Different types of companies lend money for mortgages. The following types are listed to help buyers in their searches for loans to buy houses.

Mortgage Bankers typically originate loans and then sell these loans to the secondary mortgage market shortly after funding. (Mortgage bankers may or may not sell the servicing of the loan.) Often mortgage bankers have attractive loan programs and rates.

Portfolio Lenders make loans with the institutions' own funds and keep the loans on the institutions' books rather than immediately selling them to the secondary mortgage market. Many institutions engage in mortgage banking as well as portfolio lending.

Since portfolio lenders fund the loans with their own money, they are not confined to Freddie Mac/Fannie Mae guidelines. After portfolio loans have reached their one year anniversary dates without late payments, they are considered seasoned and may be sold to the secondary mortgage market even if they do not meet Freddie Mac/Fannie Mae guidelines.

If portfolio loans are sold to the secondary mortgage market, the portfolio lenders may continue to service the loan.

Direct Lenders fund their own loans. Direct lenders usually fall into the category of mortgage bankers or portfolio lenders.

Correspondents act on behalf of one or several lenders (sponsors) throughout the origination and closing. Loans are usually underwritten by the sponsors. Correspondents acts as lenders' agents. Correspondents may also service the loans for the lenders.

Mortgage Brokers work as intermediaries between lenders and borrowers. Mortgage brokers have access to a number of lenders and often offer the most variety in loan programs. Brokers assist borrowers in filling out loan applications, obtaining credit reports and appraisals, selecting loan programs and finding lenders to fund the loans. In general, brokers do not make the decision to extend the loan and do not fund the loan.

Mortgage brokers may be paid by the borrowers or the lenders. Payments to the brokers are typically included in the closing costs as either fees or points.

Wholesale Lenders underwrite and fund mortgage loans. Wholesale lenders may also service loan payments and ensure the loans' compliance with underwriting guidelines.

Banks, Credit Unions and Savings & Loans use funds gathered from their customers through checking, savings and certificates of deposit to make mortgage loans. The institutions may hold the loans in their portfolio or sell them to a secondary mortgage market.

Secondary Mortgage Market

When buyers apply for home mortgages they may be under the impression that the mortgage lender will be servicing the loans until the loans are paid off. This may not be the case. It is common practice for mortgage loans to be bought and sold to secondary mortgage market investors, sometimes more than once in the lives of loans.

These transactions will not affect buyers/borowers mortgage amounts or mortgage payment. The secondary mortgage market is comprised of investors like Fannie Mae and Freddie Mac. Selling loans to the secondary mortgage market provides primary lenders with funds needed to issue new mortgage loans.