What is a Direct Lender?

If a Loan Officer tells you that he is a Direct Lender in an effort to imply that he has superior pricing, he either doesn’t know what he’s talking about or is being purposely deceptive. The only true Direct Lenders out there are what we call Private Money lenders, also known s Hard money lenders. These are either organizations representing large private pools of money from a group of private investors or a really really rich dude whom is trying to get richer. Either way, these sources charge hefty points and big interest rates, typically to residential or commercial investors that are buying, fixing and flipping properties or bailing someone out of a bad situation, often a homeowner seeking a way out of a bad housing situation on their primary home in order to pay their existing mortgage lender in effort to come current to avoid foreclosure.

Or if the same Loan Officer claims they have superior service because they have an “in-house” underwriter, this usually doesn’t mean better service, it often means limited service because that underwriter is bound by their in-house loan program guidelines and limited in-house staff; limited capacity.

If he believes he’s a direct lender because he’s selling the type of loans that are backed or insured by agencies such as Freddie Mac, Fannie Mae, Ginnie Mae or Aunt Sally, just kidding, my Aunt Sally doesn’t have that kind of money. He’s still wrong because none of those agencies provide loans direct to the consumer. So, Except for the really rich dude, we’re all brokers in a sense because it’s all third party origination, including portfolio and correspondent lending.If he believes he’s a direct lender because he’s selling the type of loans that are backed or insured by agencies such as Freddie Mac, Fannie Mae, Ginnie Mae or Aunt Sally, just kidding, my Aunt Sally doesn’t have that kind of money. He’s still wrong because none of those agencies provide loans direct to the consumer. So, Except for the really rich dude, we’re all brokers in a sense because it’s all third party origination, including portfolio and correspondent lending.

If a Loan Officer says, I’m a Banker so that means I’m a bank. No, it doesn’t. “Banker” doesn’t mean bank, Banker means advertising compliance. The reason for the “er” at the end of this job title doesn’t mean the Loan Officer represents an actual bank, it means he our she is complying with federal regulation as it pertains to advertising. Complying to federal regulation, yes. Better pricing and more control over the file, not so much. Trust doesn’t mean you’re a direct lender, t actual means you’re an indirect lende. If you fund off warehouse lines, you’re not a Bank or a Direct lender. A line of credit does not make you a bank. It is surprising regulators still allow the term “lender” in these examples. Most mortgage brokers are more agency “direct” with their investors than lender-employed originators, but they don’t use this title. Even if closing in portfolio-held by an originator’s employer, wholesale lenders offer the same programs in nearly every case (commonly with less overlays).

Because we’re all third-party originators, it is best to work with an actual Broker because a Broker can give you options specific to your credit profile; the best options that are available to you and your loan scenario.

A Mortgage Broker, you can go to any lender that you want that number one will provide the best pricing and number to the best service reason being is these lenders compete for a broker’s business which is good for the consumer which will often benefit the consumer.

The over-all cost of a mortgage loan is always very important and the quality of service is equally equally as valuable.

Because a broker has multiple resources and the freedom to pick and choose a wholesale lender that can can provide the best of both worlds, pricing and service.

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2 comments so far

  1. Mathurin on

    A direct lender is whoever uses their own funds to lend. These funds can be cash-on-hand, available equity in the business, depositor funds in case of depository banks, or from a line of credit a/k/a a warehouse line. The direct lender may decide to hold on to the mortgage and service it (bill and collect payments etc.) or sell the mortgage with servicing rights, or sell the mortgage alone and keep the servicing rights. These can be sold to anyone in the secondary markets, such Fannie Mae, Freddie Mac, private MBS, aggregators who securitize or sell pools, or other banks, etc.

    A broker, then, is someone who shops the application to multiple direct lenders.

    Since the implementation of Dodd-Frank and further tightening of the origination and closing process under TRID, it is getting harder for brokers to compete with direct lenders. It seems that some of these brokers are publishing BS to keep whatever business they can.


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