A mortgage lender is simply a mortgage bank or financial institution that lends and underwrites mortgage loans. Lenders have certain lending guidelines to check their creditworthiness and potential ability to pay a loan back. They establish the terms, frequency, term, and other important aspects of a mortgage loan. Lenders must have a reasonable degree of confidence in assessing what the borrower can reasonably be expected to pay.
Mortgage Lenders do not use checks with the same frequency as credit card companies; however, they check financial information often enough to establish a level of comfort about the loan applicant’s ability to make the payment.
Mortgage brokers are mortgage lenders or brokers that work directly with lenders to obtain mortgage loans. Brokers bring one loan application to the attention of one or more mortgage lenders. Mortgage brokers receive either referral fees when a mortgage lender uses their services or a fee based on the amount of referral fees they charge. Mortgage brokers receive a portion of the commission from each loan they refer, and the remainder of the loan’s interest is paid by the mortgage lender. Mortgage brokers work for their own business interests and may try to steer customers away from other mortgage lenders or to attract customers to submit more references to a particular lender.
Brokers have access to wholesale lender lists that are not available to most retail banks. Mortgage brokers have agreements with wholesale lenders to provide them with preferred rates and terms. Mortgage brokers can negotiate lower amortization payments for homebuyers. They can also get you a better loan term and interest rate. Brokers generally work with two types of mortgage lenders; retail banks and online wholesale lenders.
Most specialty mortgage lenders will not consider a person unless their credit scores and income information to meet the minimum standards of what is required to apply. Most high end specialty lenders typically do not deal with low credit scores or with income underwriting unless the individual has achieved impressive credit scores. The majority of high end lenders do not require income verification at all. The exception could be Alt-A mortgage lenders who will typically verify credit scores using automated underwriting software. If the applicant does not meet their income or credit verification requirements, however, they will not be considered for an Alt-A mortgage.
Mortgage lending requirements vary greatly by state. In some states borrowers must obtain non-guaranteed loans and must meet credit and income guidelines. Borrowers in some states will be able to purchase an existing property and use the funds for the down payment. In some states the lender must finance the entire mortgage amount.
Most mortgage companies offer both direct and correspondingly licensed financial institutions for business mortgages and cash advance and payday loans. This means that most correspondingly licensed financial institutions are typically either direct or correspondingly licensed mortgage companies. Direct lenders are typically highly regulated to ensure fair and competitive loan practices and have very strong disclosure penalties for misrepresentation.
Mortgage bankers, who do not do direct loans, specialize in large packages of mortgage loans with various features and costs. They then sell these packages to individual buyers through a mortgage banker dealer or broker. While a mortgage banker can be considered a direct lender because they provide mortgage loans to individuals, they are not considered a direct or correspondingly licensed lender. A mortgage banker is only required to meet the applicable federal and state regulations for money lending and is not required to have either a license or registration with the secretary of state. A mortgage banker is not required to process payments and does not participate in the underwriting process with respect to a mortgage loan.
Mortgage disruptors are mortgage companies and brokers who do direct loan processing but do not participate in the underwriting or loan review processes associated with a conventional mortgage lender. Mortgage disruptors can be considered a higher risk than other mortgage companies and brokers, since the primary function of a mortgage disruptor is to obtain a cash advance and not provide quality mortgage service. However, even though mortgage disruptors do not directly facilitate quality mortgage service, they often operate by offering their high quality mortgage rate and loan terms to borrowers, thereby providing an advantage to borrowers.