What Is Correspondent Lending?

Mortgage correspondent lending refers to a business arrangement in the mortgage industry where a lender originates and funds mortgage loans using its own funds and resources. The lender then sells those loans to a larger financial institution, typically a mortgage aggregator or investor, shortly after closing. The larger institution, known as the correspondent lender, establishes a relationship with the originating lender to purchase their loans on a regular basis.

In this arrangement, the originating lender acts as a correspondent or broker, originating mortgage loans on behalf of the larger institution. The correspondent lender sets specific guidelines and criteria for the loans they are willing to purchase. The originating lender’s role is to underwrite the loans, ensure they meet the correspondent lender’s requirements, and then sell the loans to them.

Correspondent lending offers benefits to both parties involved. The originating lender gains access to funds to continue originating new loans, while the correspondent lender benefits from a broader reach in terms of loan origination capabilities and loan volume.

It’s important to note that correspondent lending is different from wholesale lending. In wholesale lending, the originating lender typically acts as a broker, submitting loan applications to a wholesale lender who underwrites and funds the loans. In correspondent lending, the originating lender both originates and funds the loans before selling them to the correspondent lender.

Overall, mortgage correspondent lending allows smaller lenders or mortgage companies to leverage their loan origination capabilities while transferring the long-term risks associated with the loans to larger financial institutions.