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Your Best Choice May Not Be Either a Broker or a Bank.

There's a third option open to borrowers called correspondent lending. And it mixes the best of both the mortgage broker and the mortgage banker. Just as banks established wholesale channels, they soon began to open up correspondent lending.

A mortgage banker who acts as a correspondent does so by agreeing to send a loan that she originates to the corresponding lender right after money changes hands. In this instance, a mortgage loan is truly "sold," and this is done individually. Selling a single loan to another lender is called flow selling. Flow selling is simply selling the rights to a loan as the loan gets funded.

But here's the neat part. Just as a mortgage broker can shop around for the right loan at the right price, a mortgage banker can shop around for the very same loan and price with different mortgage bankers who have correspondent relationships with one another.

In this instance, a mortgage banker will originate the loan, search for a competitive rate quote from another mortgage banker (just as a broker would do with a wholesale lender), lock in the rate, document the loan, approve it, and issue a mortgage using its very own funds.

When you apply for a mortgage with one of these bankers and lock in your loan, the mortgage banker, in turn, immediately locks in that loan with its correspondent lender. By locking it in, the mortgage banker has "presold" that loan to the corresponding lender at a set price, determined ahead of time. When the loan is funded, it is then shipped to the correspondent lender.

Just as a wholesale lender offers below-market rates to mortgage brokers, correspondent lenders offer below-market pricing to their mortgage bankers. Almost every time, this price is even lower than what wholesale lenders can offer their mortgage brokers.

The correspondent banker also performs other specific functions that the mortgage broker is not set up to provide. Brokers can't underwrite loan files or sign off on mortgage loan approval conditions, they can't print closing papers, they certainly can't issue funds for the loan because they're not bankers, and they don't ship the loan to the wholesale mortgage lender who granted the mortgage in the first place. (We'll address the various people in the loan process in the next chapter.)

In exchange for taking on all of this additional loan overhead in the form of salaries and jobs, a correspondent banker is given a lower rate. How much lower is this rate? A common exchange is usually another 1/4 to 1/2 point.

Correspondent bankers can search not only for a lower rate, but also search for a particular loan program that not all lenders offer because a correspondent banker has access to multiple mortgage banks. Even though there are fewer loan types than there were just a few years ago, there is still the slight advantage of having multiple options.

A national mortgage banker is mostly stuck with whatever loan programs his company is offering, and with the rates and terms listed on its rate sheet. If a loan officer at one of these large mortgage bankers discovers that his rates on 15-year fixed-rate loans are out of the market by 1/4 percent, then he's out of luck. He has to use what he has on the rate sheet.

Correspondent mortgage bankers operate like brokers when pricing and searching for loan programs.

You've never heard of a correspondent mortgage banker? Me neither until I became one. Yes, I lived in my own little mortgage broker world and didn't know any better, but I was floored when I found that not only did I have access to almost every loan program in the market, but also that I had very, very competitive interest rates. I had the best of both worlds when I became a correspondent mortgage banker.

If you've never heard of correspondent bankers, then how in the world do you find them? Most correspondent bankers are smaller, regional players in the mortgage industry. First, you have to find a mortgage banker by asking her if she is in fact a banker or a broker. If she's a banker, ask her if she works with correspondent lenders. The person on the other end of the phone will be surprised that you even know what a correspondent lender is, so she'll assume that you're in the business or know someone who is.

If she says yes, then you've definitely found someone you want to get some mortgage offers from. And just as you would ask a mortgage broker whom he does business with, ask the banker whom she does business with. She'll tell you.

Common correspondent lenders are Bank of America, GMAC, and Chase. There are countless others, some with names you'd know and others that you wouldn't know.

Is a correspondent lender always going to be your best choice? There are a myriad of reasons to use a particular lender. Some consumers won't touch a mortgage company they've never heard of. Some like to get their mortgage at the same place where they have their checking account. Others have special requirements that demand the specific tools that a broker has. At the same time, a correspondent banker won't always have a lower rate than everyone else. The rate might be the same as all the other quotes you're getting, or it might be higher, depending upon how much money the loan officer wants to make off of your loan.

However, all other things being equal, between a mortgage broker, a mortgage banker, and a correspondent banker, hands down, the correspondent lender is your best choice in terms of the price of the loan and the control that the lender has over the loan process.

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