I’ll try to make this brief, because this is kind of a boring topic, but a very important one if you are in the real estate industry. There are a variety of ways that homebuyers access Mortgages, and its becoming more and more critical to the outcome of your real estate transaction to understand which “channel” you are accessing. The 3 predominant systems for mortgage delivery are 1. wholesale brokering, 2. correspondent lending, and 3. direct bank retail.
The wholesale mortgage broker will take a loan application, and collect supporting documentation. Then they will proceed to “shop” for the best possible rate and price structure with any number of wholesale funding sources. They send the file into this separate mortgage company for the remainder of the process. That other 3rd party wholesale company will make the risk decision, also they will make the final escrow instructions, and finally that 3rd party company will wire the funds to close.
Of course direct bank retail, is just that- go to the bank, get a loan from them if you qualify, that bank wires the funds from their pool of deposits and becomes an asset to their balance sheet.
My company Mortgage Trust, Inc. is a correspondent bank. This means that we make our own credit decisions, and wire our own funds. We also have prearranged relationships with a variety of funding sources. We have about a dozen different larger lending institutions who each have their own pricing or approval advantages and quirks. So as a mortgage borrower, you not only have a better chance of being approved, but you also have a much better chance of getting the best pricing available for your particular situation. Some of our banks are better for lower credit, some have better pricing for condos for instance, and some are better for investment purchases… you get the idea. Basically, pricing just flat out fluctuates… one week we may get the best rates from one source, and the next week another one rises up and takes the top spot. With a correspondent bank, you will always get the best of what’s available price wise, with the added bonus of complete local control over the entire process from end to end, as we are approving AND funding these loans from our office.
We also have the ability to broker to wholesale sources and act as a broker when the situation demands it, but this is increasingly rare, as most wholesale mortgage companies are becoming more and more alike. There isn’t any funding source sticking their neck out to lend to a strange situation like there used to be.
- Brokering = good pricing, no control over the process.
- Direct Bank Retail = not as good pricing, possible corporate control over process (underwrite in Florida, and final docs processing from Des Moines or something).
- Correspondent Lending = best available pricing, maximum control over the process.
I totally failed to make this brief. This is the longest blog post yet! If you made it this far, email me and I’ll buy you a cup of coffee. I owe you!