Friday, February 22, 2008

Types of mortgage companies

Mortgage bankers, mortgage brokers, or mortgage companies are primarily representatives of the ultimate sources of money, such as life insurance companies, savings banks, trust or pension funds, or private parties. They are essentially money brokers who may or may not service the loans they originate. These entities are not thrift institutions, nor are they depository institutions, but they do assist by bringing the borrower together with a lender and charge a fee for this service. Investment bankers – Investment bankers make a market for both new and seasoned mortgage–backed securities. These firms, called securities dealers, buy and sell securities from lenders and investors. Mortgage bankers, savings banks, pension funds, insurance companies, and mutual funds generally conduct their secondary market transactions with investment bankers.

Mortgage loan brokers are in the business of locating borrowers and lenders, and arranging loans between them. As such the loan broker takes no risk of loss. Another distinction between a mortgage banker and a mortgage (or loan) broker is that mortgage bankers service the loans of the lenders that they represent, whereas loan brokers usually do not. Mortgage bankers differ from mortgage brokers in that the former generally are not third parties to a loan. They generally fund the loan with their own funds.

Mortgage bankers are generally incorporated businesses that can make loans with their own funds or through a line of credit. The mortgage banker originates, finances "funds", and closes loans secured by real estate and sells them to Institutional investors for whom the loans are thereafter serviced. While at times a mortgage banker might act in a broker capacity, particularly if the loan is for an amount beyond the capacity of the mortgage banker to fund, this would be the exception rather than the rule.

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Many of the loans made by mortgage bankers are made for particular investors such as other lenders and pension plans. They will make the loans to meet the lending criteria desired by these particular investors. Much of their activities deal with out–of-state lenders and investors who desire to make long–term loans secured by California real estate. Because of the size of our real estate market, California mortgage bankers can assemble packages of trust deeds of significant value.

Mortgage Correspondent – When a mortgage banking company represents a life insurance company, bank, thrift association, pension fund, or other lender, it is called a mortgage correspondent. It "corresponds" on behalf of its principals in dealing with prospective borrowers. The mortgage correspondent is paid a fee in exchange for originating, processing, closing, and servicing loans. The firm may be given exclusive territories, in which case the correspondent will be entitled to a fee, even if it had not actively solicited the loan; or it may be nonexclusive, in which case the correspondent is in effect in competition with the lenders that it represents. Whatever the type of arrangement, loan correspondents serve a very valuable function in real estate financing for lenders whose headquarters or principal offices are located great distances from the properties on which they make loans. Correspondents have been especially successful in the Far West, particularly in California. Although most mortgage companies act as correspondents in investing others' funds, there are many firms that invest their own funds exclusively. Another category of mortgage lender is a hybrid, both investing money into real estate trust deeds and mortgages for others in an agency or fiduciary capacity, and its own funds in the role of a principal.

Mortgage companies do not take deposits, but finance their operations through short–term bank loans, their own capital, and fees from sales and servicing. They routinely sell nearly all the loans they originate, and are minor holders of mortgage debt.

In California, mortgage companies are licensed by the Department of Corporations, and they are subject to lending and other general business regulations.

Mortgage companies may also engage in a number of related real estate activities. These include brokerage, development, construction, and property management. This is especially true when activity in the mortgage market slows down.

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