Types of Mortgage Lenders
Element Funding is a Correspondent / Direct Lender. We own our processes, make our own lending decisions, fund in our name, assume all lending risk, and have $1B credit-line. We feel this structure provides the greatest flexibility and options.
Correspondent lenders work with an investor, who purchase mortgages that meet certain criteria. Often this is either Fannie Mae or Freddie Mac, since they are the major U.S. secondary lenders.
A direct lender simply means a lender that originates its own loans, either with its own funds or borrowed funds. It can therefore be either a mortgage banker or portfolio lender. It does not, therefore, act as an agent for a wholesale lender. Direct lenders are inevitably retail lenders as well, because they do not involve third parties or middlemen in making loans to consumers.
Lend money to banks or other mortgage lenders with which to issue their own loans, on their own terms. The warehouse lender is repaid when the mortgage lender sells the loan to investors.
Mortgage brokers do not make loans but rather serve as an agent, handing clients off to someone else to do the loan.
Banks or other institutions that do not deal directly with consumers, but offer their loans through other parties. Often, these are large banks that also have retail division that work with consumers directly, for example SunTrust and Wells Fargo. They have both wholesale and retail operations.
They issue mortgages directly to individual consumers. They may either lend their own money or may act as an agent for a wholesaler.
The majority of U.S. mortgage lenders are mortgage bankers, who don't lend their own money, but borrow funds at short-term rates from warehouse lenders to cover the mortgages they issue. Once the mortgage is made, they sell it to investors and repay the short-term note. Those mortgages are usually sold through Fannie Mae and Freddie Mac, which allows those agencies to set the minimum underwriting standards for most mortgages issue in the United States.
Use their own money which they typically maintain on their own books, or "portfolio." Because they don't have to satisfy the demands of outside investors, they can set their own terms for the loans they issue. You may pay higher rates for this service, but not always, because portfolio lenders tend to be very careful who they lend to.
Hard Money Lender
If you can't qualify through a portfolio lender, a hard money lender may be your option of last resort. Hard money lenders tend to be private individuals with money to lend, though they may be set up as business operations. Interest rates tend to be quite high and require a high down payment. Typically used for short-term loans, such as for investment property, rather than long-term amortizing loans for a home purchase.