It’s common to hear borrowers and agents say they prefer to use a local lender, but who is a local lender?

When you hear lenders marketing themselves as “local lenders” they are most likely to be brokers.  What’s the difference and why would it matter?  I’ll explain more below.

There are basically 3 types of lenders:

#1) Brokers:

Privately owned small businesses who are not a lender themselves, but application takers who then “broker” to a wholesale lender.

#2) Correspondent:

A larger operation who does underwrite and fund their loans from a credit line.  After closing they sell the loan to another lender for servicing.

 #3) Banks:

These are your large institutions.  Chase, Wells, BofA and so on, who do home lending along with checking, savings, credit cards, commercial lending etc.

Then there’s Guild:

We are kind of a hybrid of the three.  We underwrite and fund our loans in house and keep servicing of the majority of our loans like a bank. However, unlike a bank, we focus only on home lending. 

Pros and cons:

Brokers are not affiliated with a single lender, so they do have the option to shop all wholesale options. What they don’t tell you is that 90% of all brokers use the same wholesale lender.  I won’t name names, but here is currently a lawsuit against them as well for misleading and steering. While they may have an office in town, the loan could be underwritten in Ohio and make payments to Florida….wherever the wholesale lender is located at.

Correspondent lenders offer many of the same programs as any other lender but often have “investor overlays.”  What this means is they are more conservative with programs and guidelines such as credit scores, property type, income calculations etc…because they fund off a credit line who needs to get paid back when the loan closes and they sell it.  So, they are protecting themselves from a “buyback” (when a loan is rejected by the wholesale buyer) and they must find another buyer, often times taking a loss to get it off their books.  Loans would be underwritten and funded locally, but then sold off after closing to any number of lenders.

Banks are huge institutions with lots of capital.  But because the view home lending as a side product/option they can also be pickier of what they wish to do.  We find that they can sometimes offer great rates, but only if you fit within a tighter box.  And they are less concerned with service and the experience because their business does not rely on home lending alone.  Loans are usually underwritten and funded out of a large service center.  Many are in Tempe AZ.

Guild is 100% focused on home lending alone! While we are a nation-wide company, based out of San Diego, we operate regionally and our processing, underwriting, and funding are all done locally (In Tigard OR for me specifically). Because we keep servicing, we can be more flexible on programs and guidelines for our borrowers.  We have the option to broker loans, and we can create our own special programs to find more solutions to help more families than any other lender type! 

And don’t overlook the value of servicing!  When a loan funds and is sold by a Broker or Correspondent lender, the loan officer is now a 3^rd party and does not have access to the loan servicer. I love that my clients can reach out to ME directly if they have any questions.  They never need to call a 1-800 number because I can help!

Who do you think is a “local lender”? A lender who sends your loan across the country to underwrite and fund, then sell it. Or a lender whose operations ARE local and a loan officer who can help you after closing.