Best,
Morgan

What would be a timely topic to write about would be the advantages of dealing with a mortgage banker versus a mortgage broker or vice versa.

If you started a thread on this and had it on ActiveRain as well as your Blown Mortgage blog, it might get some interesting responses. Worth thinking about.

Jim

Here I have to diverge from Carl. In the days of high loan volume correspondent lending can be very profitable; and create profit centers above and beyond traditional broker profit. Here are a couple of examples.

Correspondent lenders are often offered volume incentives that brokers do not get. For example New Century would offer 1 full point on volume sent to them over $2,000,000 each month for correspondent lenders.

So if I send $2,000,000 to New Century in a given month they send me a check for $20,000; each month! Now Carl is right – there are extra expenses such as salaries for more operations people, compliance costs, interest on borrowed money – but AS VOLUME GOES UP, the profit gets lucrative.

Correspondent lenders can also capitalize on other profit centers such as fixed-fee income. Underwriting fees, document preparation fees, etc. are all fees that brokers cannot collect that can be collected by correspondent lenders. They do offset cost but there is definitely profit in those centers.

Correspondent lenders are also not required to disclose yield spread premium from the investors on closing statements. Brokers must. This allows correspondent lenders to hide profit on interest rate mark ups to customers that brokers can’t get away with.

Thanks for the added info. You’re last paragraph explaining how it is possible to have lower levels of companies operating under the same heading as a larger company above them, shows just how complex and confusing the whole infrastructure of mortgage lending is. Brings to mind the old Abbott and Costello “Who’s on first” comedy skit.

One last question regarding a smaller mortgage banker. Do they typically earn more by going through a correspondent lender or do they make more by just getting a warehouse line of credit? If you could give an example that would be great.

Thanks
Jim

Let me see if I can answer these for you:

“First off, I did not understand ?A correspondent lender uses the money from the warehouse lender to close loans, and then sells the packaged and completed closed loans to the wholesale lender. This is the retail lender that usually deals directly with the public.?”

Here Carl means that the terms “correspondent lender” and “direct/retail lender” are often used interchangeably. So the correspondent lender that sells the loans to the investor (he uses wholesale lender) is the one that originates the loan with the borrower (i.e. the public). This is true most of the time (my video will get in to a bit more).

You said:
“Another area where I am confused is don?t both correspondent lenders and mortgage bankers get credit lines from warehouse lenders? If that is the case, what would be the reason for a mortgage banker to go to a correspondent lender for funding? Isn?t this like using an unnecessary middle man in the transaction?”

Correspondent lender and mortgage banker are used interchangeably in the business; so it is often one and the same entity. However there are some larger lenders that use warehouse lines that also offer correspondent relationships again to smaller mortgage bankers. In that case yes there is an extra middleman, but it is often necessary since the smaller mortgage banker could not get approved with the larger investor used by the bank that is offering them the correspondent relationship.

Take for example a small mortgage banker – they may not have the financial requirements to get approved with Credit Suisse as a correspondent lender; so they seek out a mid-sized bank who they can get approved with who in turn sells their loans to Credit Suisse. There are many mutations to this as well.

Yes, you are right in your summation. Many investors act as all parts of the puzzle. For example Countrywide originates and closes loans directly with the public through their retail ARM, has brokers working for them via their wholesale channel, has correspondent lenders selling them closed loans, offers warehouse lines of credit to mortgage bankers, provides warehouse credit lines to larger mortgage bankers who in turn offer wholesale and correspondent relationships of their own (think of New Century). So yes it does get convoluted to say the least.

Best,
Morgan

No problem – I know unlike some others in this business – you usually promptly reply when someone has a question. Also, I hope your wife is doing well and it is nothing serious.

After reading Carl’s explanation I did come up with a couple questions, which I will post here hoping he is still following this topic and might answer, if not someone else.

First off, I did not understand “A correspondent lender uses the money from the warehouse lender to close loans, and then sells the packaged and completed closed loans to the wholesale lender. This is the retail lender that usually deals directly with the public.”

Is this saying the wholesale lender deals directly with the public? This sounds contradictory since I would think only mortgage brokers, mortgage bankers and others considered direct lenders would be dealing directly with the consumer.

Another area where I am confused is don’t both correspondent lenders and mortgage bankers get credit lines from warehouse lenders? If that is the case, what would be the reason for a mortgage banker to go to a correspondent lender for funding? Isn’t this like using an unnecessary middle man in the transaction?

This is all very complicated especially when you see some large lenders who provide warehouse lines of credit, operate both a correspondent lending and wholesale lending department and also have a retail operations – all going at the same time. I doubt there is any other business quite so complicated and I would bet the majority originating loans don’t understand all the intricacies either.

Anyway, I’m looking forward to seeing your video Morgan and it would be especially helpful if you or someone else could put together a flow chart that would tie all the players together.

Thanks for your input.

I am actually working on a short video that shows the relationships of these banks and the players involved. It should be up early next week.

Jim