When shopping for a home loan, buyers will encounter numerous sources for lending. It’s important they are educated on the different types of lenders, so they choose to work with an originator that will provide them with the most choices and best programs. It’s also good to understand how these lenders work. Many lenders will sell loans. Who you start out working with may not be who controls your loan in the long-run. Here is a quick rundown on some of the entities a buyer will see and their role.
A mortgage banker is a lender that originates loans and resells them to the Secondary Mortgage Market, which consists of investors like Freddie Mac, Fannie Mae, Ginnie Mae, and other private companies. The loan could be sold multiple times during its lifetime. Examples of a Mortgage Banker: Countrywide Home Loans, Wells Fargo, Alpha Mortgage
A mortgage broker is an intermediary between the lender and borrower. They do not fund the loan. The wholesale lender funds the loan. Rather, they help the borrower pull their credit report (some will even advise how to improve the credit scores), locate a loan program, fill out the loan application, order an appraisal, and find a lender to fund the loan. Their flexible position allows them access to good rates and the most programs to choose from. They are paid by either the borrower or lender at closing. Examples of a Mortgage Broker: Coastline Mortgage, 1st Trust, Walker Jackson, etc.
The wholesale lender underwrites and funds the loan. Some may service the loan payments. Examples of a Wholesale Lender: CitiBank, Farmers Bank, First Bank, 1st National, First Citizens
Banks, Credit Unions, Savings and Loans
A major portion of the primary mortgage market, banks, credit unions, and savings and loans create mortgages from the money their customers provide by means of savings accounts, checking accounts, and certified deposits. Because they self-fund their loans, they are often referred to as “direct lenders”.
Banks, credit unions, and savings and loans usually manage loan payments; however, have been known to sell their loans to the secondary mortgage market. Larger banks and Savings and Loans may be referred to as “portfolio lenders”, because they can fund their own loans and don’t need to sell them to the secondary market. This frees them from the lending guidelines created by Freddie Mac and Fannie Mae, which isn’t always good for the homeowner.
Keep in mind that the roles of some of these entities overlap. A whole sale lender may share the same name as bank and a credit union may act like a broker. It all depends on their size and the department involved. Buyers should do their research and ask as many questions as they can before signing loan paperwork. It could affect their ability to refinance later on.