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An institution which is lending their own money and originating
loans for itself is called a "portfolio lender." This
is because 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/Freddie guidelines and can create their
own rules for determining credit worthiness. . Usually these
institutions are larger banks and savings & loans.
Quite 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.
Selling these "seasoned" loans frees up more money
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 probably
not even realize 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.
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.
Correspondent is usually a term that refers to a company
which originates and closes home 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.
The correspondent may fund the loans themselves or funding
may take place from the larger company. Either way, the loan
is usually underwritten by the sponsor.
It is almost like being a mortgage broker, except that there
is usually a very strong relationship between the correspondent
and their sponsor.
Banks and savings & loans usually operate as portfolio
lenders, mortgage bankers, or some combination of both.
Credit Unions usually seem to operate as
correspondents, although a large one could act as a portfolio
lender or a mortgage banker.
 Advantages
and Disadvantages of the Different Lenders
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to Mortgage Articles & Advice
copyright 2000 by Terry Light and
RealEstate ABC
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