Correspondent Lending | What is it?

When you’re in the market to buy a home, the plethora of options can be overwhelming. Deciding on the right house and figuring out the most suitable loan option are critical aspects of this process. Among the myriad decisions you’ll face, choosing the right mortgage lender is a key component, and one lending option worth exploring is correspondent lending.

What Is Correspondent Lending And How Does It Work?

Correspondent lending involves a lender originating and funding a mortgage, only to sell it later – often to entities such as Fannie Mae, Freddie Mac, or government agencies like the Federal Housing Administration (FHA) or Department of Veterans Affairs (VA). These agencies bundle the mortgages and sell them as mortgage-backed securities to investors.

This approach addresses challenges associated with portfolio mortgage lending, where a lender holds a loan for up to 30 years, waiting for it to be paid off. In today’s landscape, lenders typically fund a loan and then sell it to major mortgage investors, enabling them to recoup funds for additional home loans.

While the correspondent lender may sell the loan, they often continue to service it, managing tasks such as payment collection and escrow account maintenance. This ongoing relationship ensures that clients remain connected with their lender even after the loan has been sold.

A Correspondent Lending Example

Consider an eligible veteran recently discharged from the military searching for their first home, choosing to work with Obsidian Mortgage. Obsidian takes care of the application, documentation, appraisal scheduling, underwriting, and provides funding. After closing, the loan is sold on the secondary market to the VA, and the funds received are used to facilitate more loans.

As a servicer, Obsidian continues its relationship with the borrower, forwarding payments to investors and maintaining the client’s escrow account.

Who Can Use A Correspondent Lender?

Correspondent lenders, working with various mortgage investors, cater to a diverse range of home buying scenarios. Whether purchasing single-family homes, condos, multifamily properties, or investment properties, correspondent lenders, like Obsidian, offer solutions for a broad cross-section of the public.

Pros And Cons Of Using A Correspondent Lender

Pros:

Wider variety of products: Correspondent lenders collaborate with multiple mortgage investors, providing a broader range of loan products.

Knowledgeable on approval guidelines: With established relationships, correspondent lenders possess insights into approval conditions and exceptions.

Experienced with mortgages: Correspondent lenders offer a wealth of experience and a wide portfolio of options to help clients find suitable mortgages.

Cons:

Extra fees: Some lenders may charge additional fees, requiring borrowers to be vigilant about costs.

Policies must be followed: Correspondent lenders must adhere to investor policies, and loans failing to meet standards cannot be originated.

The Bottom Line: Correspondent Lenders Make Mortgage Shopping Easier

Correspondent lenders guide loans through the entire origination process before selling them to major mortgage investors. Obsidian Mortgage, as a correspondent lender, emphasizes ongoing service, ensuring a lasting relationship with clients even after the loan closes.

The key advantage lies in the diverse loan programs correspondent lenders can offer, making them an excellent option for most individuals in the market for a mortgage. If you’re ready to explore mortgage options, you can apply online with Obsidian Financial Services or contact us at (321) 308-6139.