The expansion of correspondent programs in private mortgage lending started in 2018. The increased competition for deal flow spurred this creative way for lender to get more deals. The companies offering this program are typically national lenders with a large operation that also originate loans themselves. They already have a back office and efficient system to fund loans in multiple states. Some of them offer a white label solution in which a separate entity has been set up for closing, so that the lender’s brand is masked. Other lenders simply offer lower pricing for loan originators and call it a correspondent program, or table funding.
How it typically works:
- Loan Originator goes through approval process
- Originator advertises Correspondent loan program to their clients as if it were their own
- Originator presents deal to Correspondent
- Correspondent evaluates loan request
- Originator issues a term sheet to Borrower without reference to Correspondent
- Correspondent does not communicate with Borrower
- Correspondent funds the loan and retains servicing
- Originator maintains relationship with Borrower
Correspondent lending is typically offered for residential investment and multifamily properties. However, there are a small number of lenders offering this program for commercial real estate – office, retail, industrial, assisted living facilities and others.
Most private lenders that offer a correspondent program will charge an origination fee. We’ve found that amount to typically be in the range of 0.50 to 1.25 points. The loan originator can add their origination fee on top of that, and there may be limits. The lender may not like to see the total origination fee being too much higher than what they charge.
The interest rate spread is what makes a correspondent program attractive. A loan originator can earn a rate spread for the duration of the loan and not have to handle the loan servicing.
Some Correspondents offer the opportunity for the loan originator to earn a spread on additional fees like credit reports, background checks, and appraisals.
An Alternative to Brokering
Many mortgage brokers that have a correspondent relationship for private lending are advertising themselves as a direct lender, which may give them more credibility with their clients and give them an edge over their competition. This not necessarily good for other private lenders in the market, but all lenders may want to consider forming a correspondent relationship to monetize good leads that they cannot fund in-house. Some private lenders only lend in one particular region. If they get a lead for a deal outside of their lending area, they can use a correspondent to get that deal funded, without risking their own capital.
Lenders Offering a Correspondent Program
Our site has a Capital Directory in the Services section which includes institutional note buyers, capital advisors, and correspondent programs.
Contact us if you have any questions about these companies or private mortgage correspondent programs. We will continue to add more companies to our Capital Directory and make an effort to maintain a database of many capital providers in the private lending industry.