Types of Mortgage lenders
The terminology for different types of mortgage lenders has become increasingly confused in recent years, thanks to industry expansion and other developments.
Wholesale Lenders:
Wholesale lending institutions provide loans through mortgage brokers or correspondents. The mortgage brokers or correspondents receive the borrowers’ applications and process the loans, while the wholesale lender (usually) approves the loans and provides the funds. Some wholesale lenders have retail branches, while others rely solely on loans originated from brokers or correspondents. Wholesale lenders offer loans to brokers at a lower cost than retail branches offer to the general public; however, once the broker’s fee is added in, the approximate cost to the borrower is about the same as when borrowing directly from a retail branch. Most portfolio lenders and mortgage bankers also have wholesale lending divisions.
Mortgage Brokers:
Mortgage brokers mediate between individual borrowers and wholesale lending institutions. Mortgage brokers originate the loan – find, counsel, and pre-qualify borrowers, receive applications, run credit and background checks, etc. – and then turn the loan over to a wholesale lender for final approval (underwriting) and disbursement of money. Mortgage brokers are not technically mortgage bankers, though many mortgage brokers are also correspondents (lenders who deliver loans to wholesale lenders), giving them some right to the title.
Mortgage Bankers:
Mortgage bankers (also known as mortgage companies or mortgage lenders) are lenders who sell all loans in the secondary market (the market in which mortgages and mortgage-related securities are bought and sold). Mortgage bankers originate, process, and approve loans, then sell the loans in groups to large loan investors (e.g. – Freddie Mac, Fannie Mae, Ginnie Mae, etc.). Mortgage bankers can vary greatly in size; furthermore, while some mortgage bankers continue to service the loans after selling them, others do not. Wells Fargo Mortgage is a mortgage company, for example, as is Countrywide Home Loans. Some other companies may call themselves mortgage bankers, but only for the purposes of marketing.
