What is correspondent lending?
A correspondent relationship is an avenue for mortgage brokers and bankers to sell the mortgage loans they write. A correspondent agreement between the originator and sponsor describes exactly which loans the sponsor will buy under the agreement. This allows the broker or banker to fund loans in their own names and quickly get them off the books by sending them up the correspondent channel to the sponsor lender. The sponsor pays the correspondent for the loan, and that money allows the correspondent to fund another loan. This process is sometime called “white label” or “table funding,” which lets the broker or banker be the lender while immediately selling the loan off its books. The broker or banker becomes known as a correspondent lender.
Because residential mortgage lending is highly regulated and therefore inherently risky, the sponsors look for correspondents who have been in the business for some time, have monthly production, net worth and can carry the appropriate insurance. Emerging mortgage bankers and brokers look for correspondent relationships that offer the products they sell, whether it’s conforming, jumbo or government mortgages.
Each sponsor offers its own suite of programs and products. There is a mini correspondent or “mini-corr” agreement that helps the broker move into banking, thereby enhancing his/her reputation. Similar correspondent programs offer terms to emerging bankers and sponsors control how the correspondents underwrite the loans. They can decide whether or not to delegate underwriting to the correspondent. The sponsor may offer warehouse lines to their correspondents and those correspondents can use the warehouse line to fund the loan it sells up the correspondent channel and then pay back the warehouse line with the proceeds.
There are correspondent channels for all kinds of residential mortgage lending, including prime, FHA, Non-QM, hard money and reverse. Correspondent opportunities are also available for commercial lenders.
