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Correspondent Lending
What is correspondent mortgage lending?
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Correspondent lending refers to a lending arrangement in the mortgage industry where a lender originates and funds a mortgage loan using its own funds or a warehouse line of credit, but then sells the loan to another lender or investor shortly after closing. The lender that initially funded the loan is referred to as the “correspondent lender,” while the entity purchasing the loan is known as the “investor” or “sponsor.”
In this arrangement, the correspondent lender typically underwrites and originates the mortgage loan, ensuring that it adheres to the investor’s guidelines and meets certain quality standards. Once the loan is closed, the correspondent lender sells the loan to the investor, freeing up capital to fund additional mortgages. The investor, in turn, may hold the loan in its portfolio, sell it on the secondary market, or package it into mortgage-backed securities for sale to investors.
Correspondent lending is a common practice in the mortgage industry and allows lenders to expand their loan origination capacity without necessarily holding all the loans on their balance sheets. It also enables investors to access a broader pool of mortgage loans and diversify their portfolios.
This type of lending arrangement requires a strong relationship between the correspondent lender and the investor, as trust and effective communication are crucial for ensuring that the originated loans meet the investor’s criteria.