When an aspiring mortgage loan originator imagines passing the NMLS exam, the next logical route expectation is securing sponsorship, applying for his or her MLO license, and hitting the mortgage originations pavement. What most don’t realize when deciding to embark down the professional journey of mortgage loan origination, however, is that there are numerous options within the mortgage industry itself. People considering occupations in the mortgage loan originations industry should be thoroughly familiar with all of their options prior to simply deciding to get a job and originate residential mortgage loans.
Deciding to become a mortgage loan originator need only be the first step when embarking on your new career. The various capacities through which mortgage companies and loan originators operate, warrant further consideration surrounding the type of lender for which you will ultimately want to work. The following generalizes the various types of players comprising the mortgage industry.
Mortgage lenders provide their own money to fund the loans they originate. If they retain ownership of a mortgage loan (portfolio), they’re dedicating their own money so they may underwrite the loan based on their own specific underwriting parameters. If the mortgage lender desires to sell a loan that it originates to a government sponsored enterprise (GSE) such as Fannie Mae or Freddie Mac or to a private investor, it would have to underwrite the loan based upon that investor’s underwriting guidelines and parameters. Working for a mortgage lender affords the MLO access to the lower pricing typical of lenders but restricts the catalog of available mortgages to only that lender’s products and rates.
Unlike mortgage lenders, mortgage brokers do not fund loans. A mortgage broker acts as the borrower’s agent by working with the borrower to identify their wants and needs, by taking their application, and then by selecting the most appropriate lender to best meet that customer’s needs. The broker ultimately sends the loan through to that lender for underwriting and closing and is ultimately paid through an origination and broker fee charged to that customer as a part of their settlement costs. Although working for a mortgage broker will offer the MLO access to numerous mortgage products offered through various mortgage lenders, the broker MLO’s settlement costs will likely be higher due to the brokerage’s fees.
Wholesale lenders make and fund the loans that mortgage brokerages, smaller banks, and many credit unions sell to their customers. Wholesale lenders do not work directly with borrowers. A wholesale loan originator’s job would entail convincing various entities to direct their customers’ loans to their company. The opportunity for significant and regular residual income produced through ongoing relationships with mortgage loan originators often attracts mortgage professionals to the wholesale side. Consideration should be afforded, however, to the demands that the consistent cultivation of these relationships mandate and the ongoing need to establish new relationships. This role often requires local and regional travel.
Retail lenders lend money directly to borrowers. These loans may be ultimately retained in portfolio or sold through the Secondary Market. Retail lenders are often part of larger financial institutions, such as banks and other depository institutions, that offer financial services in addition to residential mortgage financing. Working for a retail lender can provide opportunity for cross selling although the MLO would be limited to that company’s products and services.
Warehouse lenders are similar to wholesale lenders. Warehouse lenders lend the money to banks and other mortgage lenders, generally in the form of a warehouse line of credit, with which these entities will originate and fund their own loans based on other investors’ rules. When the entity sells the funded loan to an investor, the warehouse lender is repaid. The warehouse lending originator is paid based on the warehouse lines sold and interacts with lending institutions, not individual borrowers.
Mortgage bankers originate mortgages using funds provided by warehouse lenders. These loans are almost always sold through the secondary market and therefore must strictly adhere to investor underwriting guidelines and parameters. Mortgage bankers can work for lenders but typically do not have access to portfolio loan products.
If you’re the creative type who loves to meet customers’ unique needs, a portfolio lender might be your perfect fit. Portfolio lenders utilize their own money to fund the loans they originate. Since it’s their own money, they can make their own underwriting parameters within, of course, the confines of the law. Borrowers with unique needs not met through standard mortgage financing may seek out the assistance of a portfolio lender. Although a portfolio lender may have access to more niche financing options, borrowers tend to pursue financing through them when their circumstances are challenging.
Hard Money Lenders
Hard money lenders are often a borrower’s last resort in their quest to secure financing. Hard money lenders cater to the seriously-challenged borrower. Because of the extent of risk surrounding their borrowers, hard money lenders often offer only short-term loans bearing fairly high interest rates and fees. The profitability of hard money loans is significant. The customers, however, are challenging.
Direct lenders are primarily the same as retail lenders. Direct lenders originate their own loans directly to borrowers. These loans may be portfolio retained or sold through the Secondary Market.
Correspondent lenders operate by originating loans that are immediately sold to sponsors upon funding. Primarily, these sponsors are Fannie Mae and Freddie Mac. All loans originated by a correspondent lender must adhere to the investor’s underwriting guidelines and parameters. The MLO working for a correspondent lender only has access to products underwritten based on investor guidelines.
Although the roles described above are not always mutually exclusive, you should now have a better idea of the different opportunities awaiting you throughout the mortgage industry. Regardless of the path down which you ultimately travel, your role as a mortgage originator will always be similar.