Correspondent lending is the process through which one financial institution originates, underwrites and funds mortgage loans using its own capital.
This, as a result, is distinct from transacting via a mortgage broker. Through that channel, the broker will contract out any or all of these activities.
Correspondent lending process
Underwriting in the correspondent lending process, though, is similar to that in the conventional mortgage lending process.
The correspondent lender is usually a credit union or community bank. After underwriting, it then draws on a pool of credit called a “warehouse line” to fund the loan. After closing, though, the process diverges from that of direct lending. At that point, most mortgage lenders would keep the loan on their books. Correspondent lenders, though, quickly sell the loan either to a larger bank or to investors on the secondary mortgage market. Proceeds from the sale replenish the warehouse line. The correspondent lender can then extend the funds to other homeowners or project sponsors.
Benefits for borrowers
According to one mortgage lender that offers a correspondent option, borrowers benefit from having an immediate relationship with the individuals who approve or reject the applications.
“When you work with a correspondent lender, you’re working directly with the professionals who will make the final loan decision,” CMG Financial posts on its website. “Plus, you’re not restricted to just a few mortgage options, as you might be with a direct lender that doesn’t sell its loans via the secondary market.”
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