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What is Correspondent Lending?

Correspondent lending is the origination and subsequent sale of mortgage loans on the Mortgage Secondary Market. Lenders establish relationhsips with one or many investors and through these correspondent lending relationships offer loan products and arrage financing for borrowers.

In the past, when a borrower began their search for a mortgage they were faced with the choice of using an institutional lender such as a bank or going to a mortgage broker. Borrowers tended to use their local bank because they were familiar with them from doing other business such as a savings and checking account. Loan officers in the bank were given a rate sheet that they could quote from their institution and were not given very much flexibility. The rate and terms were what they were.

Enter the mortgage broker. Mortgage brokers had an advantage over the loan officer in the bank in regards to the rate and terms they could offer to a borrower. Mortgage brokers, like correspondent lenders, established relationships with one or many different investors and therefore could often find loans at lower rates than most banks. Mortgage brokers did not use their own funds to close the loan and therefore relied on the investor to issue a final lending decision.

In today's marketplace, with the emergence of correspondent lending, the line between the bank and mortgage broker has blurred. Both the bank and the mortgage broker, in an effort to offer more products and remain competitive in today's expanded marketplace, participate in correspondent lending programs. Correspondent lenders make lending decisions and fund the loan with their own money or a warehouse line of credit. However, as soon as a loan has closed, it is sold to an investor at a previously negotiated price. This dynamic works great for the borrower. The borrower is dealing with the lender who will close the loan, and that lender is able to shop the mortgage around thereby obtaining the borrower a lower interest rate.

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