Pros and Cons of Going with a Mortgage Correspondent

A mortgage correspondent acts on behalf of a wholesale mortgage lender to service loans. The correspondent will take part in quoting your loan, underwriting your loan and finalizing your mortgage. Ultimately, however, the wholesale lender is the company that initiates the mortgage. As a result, you are working with a third-party when you elect a mortgage correspondent. This individual is very similar to a mortgage broker. Working with a correspondent may give you direct access to a wholesale mortgage, but there are also downsides when choosing this method of financing.

Work Directly with Wholesale Lenders

You may be able to find a more affordable loan through a wholesale mortgage lender. Wholesale lenders do not interact directly with the retail client. They often offer less traditional forms of financing as well, such as sub-prime loans and reverse mortgages. While gaining access to a wholesale lender can help you find a better loan, the savings may be significantly compromised through fees you pay to the correspondent.

Speak to a Representative One-on-One

A second potential advantage of having a mortgage correspondent is the ability to speak directly with one representative throughout the course of the loan. Often, large retail lending institutions will bounce you around from agent to agent. You may have to speak to one individual to gain a quote and another person when your underwriting begins. This can be frustrating for many borrowers. Even though you are working with one representative when you use a correspondent, you should note the representative is actually working for the lender, not for you. The correspondent will typically have a close relationship with a particular wholesale lender, and that is the lender you will ultimately have to use.

Pay Correspondent Fees

Brokers and correspondents make their money through charging fees on the loan. The fees can range from 3 to 4 percent of the loan's value. This money is not applied to the down payment on your new home, and it does not grow into equity. Instead, the money is simply deposited into the correspondent's pocket. There is no way to get around paying a third party if you choose this option. The fact is, however, even with a retail lender, you will still have to pay fees to close a mortgage.

Exposure to Secondary Mortgage Market

When you place your loan with a wholesale lender, the lender will sell the loan on the secondary mortgage market to a retail lender. You should know that your loan is a legal contract; even if it is sold, the new lender cannot change the terms arbitrarily. However, the new lender can act on options and terms in the contract the wholesale lender was not previously acting on. As a result, you may find items like interest rate increases on adjustable rate loans, a change in the way your payments are made or even an increase in the amount of mortgage insurance you must carry.

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