When a lender issues a mortgage, it can take up to 30 years or longer for the borrower to pay it off. Waiting to slowly collect money can make it difficult for a lender to finance new loans for other borrowers. That’s why lenders generally issue mortgages, then sell them. This practice is known as correspondent lending.
How Does Correspondent Lending Work?
A lender originates a home loan and provides funding, then sells the mortgage to a government agency, such as Fannie Mae or Freddie Mac, soon after closing. Government agencies bundle loans together and sell them to investors as mortgage-backed securities. A correspondent lender makes money when a loan closes and earns more when a mortgage is resold.
When a correspondent lender sells a loan, the borrower’s servicer may or may not change. In many cases, the borrower continues to make payments to the company that issued the loan, and the same servicer continues to manage the borrower’s escrow account.
What’s the Purpose of Correspondent Lending?
Selling loans on the secondary market gives mortgage lenders money that they can use to provide loans to other customers instead of waiting to gradually get repaid over time. That helps ensure that people who want to buy homes have access to mortgages.
What’s the Difference Between a Correspondent Lender and a Mortgage Broker?
Both can give homebuyers access to a wide range of loan types and help borrowers find mortgages that fit their needs. A mortgage broker processes an application and helps a homebuyer get a loan with the best terms available, but a broker doesn’t provide the money to finance the loan. A correspondent lender handles the entire process.
Should You Work With a Correspondent Lender?
Correspondent lenders work with a wide range of investors. They can provide loans that fit borrowers with a variety of circumstances and people who want to buy different types of properties, such as single-family and multi-family houses and vacation homes. A correspondent lender can close a loan quickly since the whole process is handled in-house.
A correspondent lender can explain your options, help you find a mortgage that fits your needs and guide you through the process. Working with a correspondent lender can give you access to mortgage options that you might not find with a lender that holds onto loans it issues.
Mortgage investors only accept loans that meet certain standards, so correspondent lenders have to make sure that borrowers meet stringent criteria. If a correspondent lender approves a mortgage for someone who doesn’t meet an investor’s guidelines, the lender won’t be able to sell the mortgage later. A correspondent lender might charge more in fees than a portfolio lender that originates a loan and keeps it in the company’s portfolio.
