Jan 2, 2024
There are four categories of mortgage lenders.
Depository institutions or banks have access to the mortgage products for sale by their institution. An employee of the bank originates the loan (helps the customer fill out the application, collects paperwork, suggests and best loan product for the customer). An employee of the bank underwrites the loan. The bank funds the loan with its own money and often services the loan. Wells Fargo and First Federal are both depository institutions.
An independent mortgage company operates much like a bank. Employees of the company originate and underwrite the loans. They fund the loan with their own money and often service the loan. The main difference between a bank and an independent mortgage company is that the mortgage company only does mortgages. They don't offer checking accounts or auto loans. New American Funding is an independent mortgage company.
You're probably also familiar with a mortgage broker. A broker doesn't lend money at all. They have a relationship with a number of "wholesale lenders" - probably many of the same depository institutions and independent mortgage companies above. The mortgage broker originates the loan. But that's where their role ends. They hand the loan paperwork off to the lender they select for underwriting, funding and servicing.
There's also a fourth category many consumers haven't heard of: the correspondent lender. The correspondent lender is kind of a hybrid between a direct lender and a mortgage broker. A correspondent lender has very close relationships with a small number of lenders. An employee of the correspondent lender takes the loan application and probably underwrites the loan in-house. But when the underwriter reviews the loan, she knows it's going to be sold to NewRez/Caliber or Chase. So she's underwriting to their guidelines, not the guidelines of the company for which she works.
The correspondent lender will fund the loan. But immediately after funding, the loan will be sold to the chosen investor, probably before the borrower even makes his first payment.
Why is this important?
Consumers who are looking for a standard, vanilla, Fannie Mae or Freddie Mac mortgage loan can probably find that type of product with any category of lender. But borrowers who have needs that don't fit the standard mold might benefit from the wider variety of products offered by an independent mortgage lender or a broker.
Working directly with the organization who will close and fund a loan also allows the lender to have more control over the process. If I need to rush a file through underwriting because my buyer is leaving town at the end of the month, my underwriters are happy to accommodate that need. I know my underwriters. I've worked with most of them for years. We all work for the same company. I can pick up the phone and call them any time. That may not be the case if I was submitting paperwork to an outside lender and crossing my fingers.
A bank or independent mortgage lender is also more likely to retain the servicing of the loans they originate. If you want to know who will be accepting your payments and managing your impound account, they might be your best bet. If you use a mortgage broker, you may not even know who the underlying investor is until you get to closing.
What about call centers and internet lenders? They're most likely to be independent mortgage lenders. But big banks and small credit unions often use call centers too.
To make matters even more confusing, many lenders switch roles for different types of loans. For instance, I work for an independent mortgage company and most of the time I'm lending my company's money. But I have the ability to broker loans if I have a scenario that doesn't fit the standard mold. I also have correspondent lending relationships with a handful of lenders, mostly for jumbo loans.
If you're concerned about who is actually lending the money you're borrowing, the only way to know for certain is to ask your Loan Officer.