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Note: The content below about broker to broker is under review and still being developed.
Types of Warehouse lines of Credit Lenders
Quite often only a portion of their warehouse lines of credit programs are "portfolio" product. If they are offering fixed rate loans or government loans, they are certainly engaging in mortgage banking as well as portfolio lending.
An institution which is lending their own money and originating loans for itself is called a "portfolio lender." This is because they are lending for their own portfolio of loans and not worried about being able to immediately sell them on the secondary market. Because of Warehouse Lines of Credit, they don't have to obey Fannie/Freddie guidelines and can create their own rules for determining credit worthiness. Usually these institutions are larger banks and savings & loans.
Selling these "seasoned" loans frees up more money for the warehouse lenders to make more warhouse lines of credit, which is another way that portfolio lenders engage in mortgage banking. If the loans are sold, they are packaged into pools and sold on the secondary market. You will probably not even realize your loan is sold because, quite likely with the warehouse line, you will still make your loan payments to the same lender, which has now become your "servicer." Once a borrower has made the payments on a portfolio loan for over a year without any late payments, the loan is considered to be "seasoned." The MBS Group with warehouse lending specializes in providing a warehouse line of credit to existing and emerging mortgage bankers nationwide. A warehouse line of credit is a revolving line of credit. Money is borrowed on the line and added to your bottom line with a warehouse line of credit. Learn more about the warehouse lines of credit provied by MBS. We have the cash flow and credibility needed to make the leap. Once a loan has a track history of timely payments it becomes marketable, even if it does not meet Freddie/Fannie guidelines. Direct lenders usually fit into the category of mortgage bankers or portfolio lenders, but not always.
Lenders are considered to be direct lenders if they fund their own loans. A "direct lender" can range anywhere from the biggest lender to a very tiny one. Banks and savings & Warehouse Lines of Credit obviously have deposits they can use to fund loans with, but they usually use "warehouse lines of credit" from which they draw the money to fund the loans. Smaller institutions also have warehouse lines of credit from which they draw money to fund loans.
Correspondent is usually a term that refers to a warehouse line of credit company which originates and closes home loans in their own name, then instead of selling those loans in pools, they sell them individually to a larger lender, called a sponsor. The sponsor acts as the mortgage banker, re-selling the loan to Ginnie Mae, Fannie Mae, or Freddie Mac as part of a pool. One way you used to be able to distinguish a direct lender was from the fact that the warehouse lines were drawn up in their name, but this is no longer the case. Even the tiniest mortgage broker can make arrangements to fund loans in their own name.
It is almost like being a mortgage broker, except that there is usually a very strong relationship between the correspondent and their sponsor. The correspondent may fund the loans themselves or funding may take place from the larger company. Either way, the loan is usually underwritten by the sponsor.
Credit Unions usually seem to operate as correspondents, although a large one could act as a Warehouse lines of Credit lender or a mortgage banker. Banks and savings & Warehouse Lines of Credit usually operate as portfolio lenders, mortgage bankers, or some combination of both.
Click Here for some basic questions answered about Warehouse Lines of Credit.
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