Chicago Mortgage Loans – Why Should You Know What Types of Entities Give Chicago Home Loans
| Looking for low Chicago mortgage rates? Then visit www.1ChicagoMortgageRates.com |
Depending on how you look at it, there are 2 or 8 types of providers of Chicago mortgage loans. The difference between some of the types is immaterial from the point of view of a borrower; other times it’s not yet borrowers, individually, have nothing to say about it. (I’m talking about Chicago mortgage loans because that’s what I know best but I’m willing to bet that the world of Chicago home loans is not different than that of any other American city.)
Here are all the types of providers of Chicago mortgage loans:
1. direct lenders
a. banks
i. portfolio lenders
A. retail lenders
B. wholesale lenders
ii. non-portfolio lenders
A. retail lenders
B. wholesale lenders
b. investors
i. hard money lenders
ii. providers of conventional mortgages
A. portfolio mortgage loan providers
B. non-portfolio mortgage loan providers
2. mortgage brokers
a. regular mortgage brokers
b. correspondent brokers (correspondent banks)
i. full
ii. mini
So, the first distinction is between direct lenders and mortgage brokers. Direct lenders have money that they lend to people who put a real estate property up as collateral. Mortgage brokers are people who, for a fee, connect a direct lender and a borrower who uses his/her real estate property as collateral.
The main difference between direct lenders and mortgage brokers is the obvious ones, direct lenders risk their own money, mortgage brokers do not, unless they are correspondent brokers. And even then, it’s not like direct lenders do.
The next difference: mortgage brokers have to disclose every little thing they charge a borrower for; banks do not.
The next one: banks determine the interest rate and set the rules under which a loan is going to be made; mortgage brokers have no say about such rules.
Direct lenders can be banks, rich people individually, groups of rich people, other types of companies (like hedge funds).
Banks vs investors: Banks can get money really cheap from the Fed; investors have to work for it, inherit it, steal it, etc., but not get it from the Fed at amazingly low rates (in relation with the rate they lend it out to home and other real estate owners.
Distinctions within the banking world. Some banks hold onto every mortgage loan they ever make. These are called portfolio lenders. Other banks sell all the loans they originate. Others act like portfolio lenders in some cases, like non-portfolio lenders in others.
The main difference, in practical terms: when banks hold onto loans, they have incentives to risk less. Those incentives translate into them being more conservative, enforcing tighter rules.
At the height of the mortgage lending madness, portfolio lenders would up to 75% of the value of a 2-unit building, for instance, while non-portfolio lenders often lent up 105% of the value of a given 2-unit building.
The next distinction is retail lending vs wholesale lending. Banks lend to their customers directly. They lend to people through brokers. To make entice brokers, they have better rates than the ones they give their own clients. To make their lives easier, they don’t deal with the brokers one loan at a time, instead they sell wholesale. The wholesaler deals with the brokers one loan at a time.
The practical difference here, for a borrower? You could get a mortgage from Wells Fargo, for instance, directly at 7% but if you go through a broker, you’d get the same loan funded by Wells Fargo at 6.77%. Because Wells Fargo doesn’t have to spend time, money or energy on marketing to get you and deal with getting your paperwork.
Let’s move to Chicago mortgage loans funded by investors.
Investors can behave like a bank, keep the loans they fund or sell them, fund them with their own money or with other investors’ money. They can also behave differently than banks in as much as they can make short term mortgage loans at rates much higher than banks can charge. Or, at the same rate but with high upfront fees.
The mortgages this time are riskier, so the rewards to the investors, when things go as they are meant to, are much higher. These investors are called hard money lenders.
Mortgage brokers come in two varieties (some say 3, but net branch mortgage outfits are not a real variety; they’re just a branch where the person running the branch gets paid based on the net profits the branch ends up making for a given period).
The real varieties are those of conventional mortgage brokers and correspondent brokers (correspondent banks is the actual, correct terminology).
The conventional mortgage broker gets paid a fee to originate mortgage loans on behalf of a direct lender. They never lend their own monies.