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A correspondent lender is a lender who originate and approve their own loans, and sell them to investors after closing or as soon as they can.
These types of lenders are usually conceived from the evolution of successful mortgage brokers or credit unions.
They have built enough trust and credibility with wholesale lenders and thus, have obtained huge credit lines from them to sell their own loans.
However, to minimize risks, they would sell the underwritten mortgages to the wholesale lender, investors, or on the secondary market.
This is why borrowers often find that their lender has changed after closing the loan.
This practice of closing and selling of loans is called table funding. So it wouldn’t be wrong to call correspondent lenders as table funders.
However, even though the strategy of selling the originated correspondent loans immediately to others is meant to limit the risks with holding, there is no guarantee that correspondent lenders would get their way.
This is because investors or any party which these loans are meant to be sold to would evaluate whether they would become performing or nonperforming loans.
If they are judged to be the latter, there is every chance that they would not buy these mortgages.
Nevertheless in correspondent mortgage lending, brokerages who continue to hold the loans would be able to collect account servicing fees from the primary lender for holding onto the note.
When mortgage brokers obtain credit lines from big lenders specifically to originate and underwrite their own loans, they are called delegated correspondent lenders.
On the other hand, non-delegated correspondent lenders would require lenders to underwrite the mortgages.
This is so that the loan documentation would meet underwriting standards that enable them to be sold more easily on the secondary market.
In effect, they basically operate like brokers. But because of how funds are moved about in the whole transaction process, the law identifies them as lenders.
For example, a mortgage application was approved at $100,000. This hundred thousand would be disbursed from the correspondent lender’s credit line to the borrower’s escrow or title company. The loan is closed and later sold to an investor. The proceeds will then be used to pay down the credit line with the profits banked in by the table funder.
A reason why this type of lenders might carefully choose how they operate is because there are different disclosure requirements are different depending on what their actual status of operation are.
This is especially critical when lenders acquire brokerages and spin them off as net branches.