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Types Of Mortgage Lenders

Mortgage Broker - is an intermediary who brokers mortgage loans for individuals and/or businesses. Mortgage Brokers work with Bankers and or Wholesale Lenders. Their primary job is to contact borrowers and process the loan. Some Mortgage Brokers employ Loan Officers and Mortgage Loan Originators (MLO).

Mortgage Bankers - are essentially Mortgage Lenders that originate and sell their loans in packages to the secondary market to investors such as Fannie Mae and Freddie Mac and other private investors. Bank of America's Country Wide and Wells Fargo Home Mortgage are examples of Mortgage BANKERS.

Direct Mortgage Lenders - are Lenders who work directly with Home Owners, with no need for Brokers. Banks, Mortgage Bankers and Portfolio Lenders are classified as Direct Mortgage Lenders if they maintain Retail Operations.

Portfolio Mortgage Lenders - originate and fund their own loans; once their loans are satisfactorily serviced for a year or more, they can be sold on the secondary market. B of A and Chase fall into this category.

Correspondent Mortgage Lenders - usually originate loans in their names and then sell the loans in pools to larger lenders, called Sponsors. Sponsors act like Mortgage Bankers and resell the pools to Freddie Mac, Fannie Mae and Ginnie Mae. Correspondents work closely with Large Lender Sponsors and their offerings are usually based on Sponsor pre-approvals.

Warehouse Lenders - provide financing to other mortgage lenders; they can originate their own Mortgages. This short term funding provides small lenders with liquidity so they can originate more loans, while selling the seasoned loans on the secondary market. Warehouse Lenders usually share in the loan fees when each loan is sold on the secondary market.

Wholesale Mortgage Lenders - work with Mortgage Bankers, Loan Officers and Mortgage Loan Originators. Wholesalers can fund loans and service them but most usually sell the loan on the secondary market. Wholesale Mortgage Lenders underwrite and process loans. Wholesale Lenders generally offer lower rates than Retail Lenders because they can manipulate the rate on their yield - spread-premium.

Subprime Mortgage Lenders - are lenders who offer loans to people who have weakened credit and are a risk for loan default. Generally speaking, many lenders consider a Fico Score of less than 620 to be a Subprime Borrower. Factors include, Limited Assets and Lower Income or the inability to provide documentation. Some Brokers and Lenders specialize in this type of lending; they charge higher interest rates and loan fees - Prime Rates are generally considered to be above 720.

ALT-A Mortgages - are considered riskier than A paper, but less risky than Subprime. Generally, a Fico Score of below 680 is considered to be ALT-A, however documentation of income, debt to income ratio, loan to value ratios and down payments are considerations for loans to be placed in this category, but of importance, is the qualification of the loan for the GSE - the Government Sponsored Enterprises such as Fannie Mae and Freddie Mac, which guarantees the loan. It's said that 40% of all mortgages fell into the ALT-A or Subprime category during the period of 2004 to 2008, however, Government Backed Loans now require higher standards, so ALT-A and Subprime Lending has virtually dried up. The Real Estate Lending Bubble revealed the overall credit worthiness of the American Population. Imagine what it would be like if everyone took advantage of No Down and No Docs! The 40% would probably have been 70%.

Variable Interest Rates - these loans have lower rates for the first couple of years, then rise thereafter.

ARM's - Adjustable Rate Mortgages may change interest rates in response to changes in the Treasury Bill Rates or Prime Rate. Rates can change monthly, quarterly, annually or in 3, 5 or 7 year periods. ARMS are also referred to as Variable Interest Rate Mortgages.

Fixed Rate Mortgages - are loans with fixed rate interest rates for the entire loan.

Click Here to view our Dictionary of Mortgage Terminology. To Learn more about Mortgages, See our Learning Center Click Here.

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Updated: 8/21/18 @ 3:16 AM

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