Types of Mortgage Lenders

It used to be fairly easy to put a term to a lender that accurately described them and the types of mortgages they originated.  Time, the S&L problems of the late eighties, and a maturing marketplace have served to "blend" those differences.  Some old adjectives barely apply now and are rarely used.

Mortgage Bankers

A true Mortgage Banker is a lender that is large enough to originate loans and create pools of loans which they sell directly to Fannie Mae, Freddie Mac, Ginnie Mae, jumbo loan investors, and others. Any company that does this is considered to be a mortgage banker.  They can very greatly in size.  Some may service the loans they originate, but not all of them will.  Most true mortgage bankers have wholesale lending divisions.

Examples of two of the largest mortgage bankers are Countrywide Home Loans and Wells Fargo Mortgage.   One is associated with a bank and the other is not, but both are most correctly classified as mortgage bankers.

A lot of companies call themselves mortgage bankers and some deserve the title.  For others, it is mostly marketing. 

Mortgage Brokers

Mortgage Brokers are companies that originate loans with the intention of brokering them to wholesale lending institutions. A broker has established relationships with these companies.  Underwriting and funding takes place at the wholesale lender. Many mortgage brokers are also correspondents, which is why many of them also claim to be mortgage bankers.

Mortgage brokers deal with lending institutions that have a wholesale loan department.

Most mortgage bankers and portfolio lenders also act as wholesale lenders, catering to mortgage brokers for loan origination. Some wholesale lenders do not even have their own retail branches, relying solely on mortgage brokers for their loans.

These wholesale divisions offer loans to mortgage brokers at a lower cost than their retail branches offer them to the general public. The mortgage broker then adds on his fee.  The result for the borrower is that  the loan costs about the same as if he obtained a loan directly from a retail branch of the wholesale lender.