Direct Lenders: originate, fund and service your loan. Direct lenders are generally larger organizations than mortgage brokers and better capitalized. Direct lenders have fewer programs than mortgage brokers but may have more knowledge of the details of their programs. The loan officer at a direct lender generally has better access to underwriters (the people who approve loans) than a mortgage broker. This may sometimes mean faster approvals.
Direct lenders may be:
- Mortgage Bankers
- Specialize in originating and servicing loans. They generally sell their loans to investors like Fannie Mae and Freddie Mac. Their underwriting guidelines (rules to make loan decisions) are supplied to them by their investors. Mortgage bankers may interpret these guidelines based on their own lending philosophy.
- Offer a wide range of financial services including mortgages. They generally offer a few select mortgage programs. Banks may keep loans in their portfolio or sell their loans. Banks may also work with other mortgage bankers to originate their loans.
- Savings and Loans
- Generally offer portfolio-adjustable loans which are easier to qualify for than most other loans. Many S&Ls offer reduced documentation loans that are ideal for self-employed borrowers. Many S&Ls have started offering fixed loans that are sold to Fannie Mae or Freddie Mac like mortgage bankers.
- Finance Companies
- Generally specialize in B and C paper loans for poor-credit borrowers, as well as 2nd mortgages. They generally raise money by selling bonds or commercial paper on Wall Street.
- Private Investors
- Like to earn high returns––so they typically invest in riskier loans that banks do not want to touch. Most of these loans are based on equity alone.