In searching for a mortgage for the purchase of your home, you have many options to consider. The major types of mortgage lenders are commercial banks, savings and loans, mortgage bankers, and mortgage brokers. Most people are familiar with banks and savings and loans, but what about mortgage bankers and mortgage brokers? Until recently banks and savings and loans have done the majority of the home lending, but in the last few years mortgage bankers and mortgage brokers have taken over.

Traditionally lenders were loaning funds from their customer's deposits. And it is still that way to some extent. However, with falling interest rates and depositors actively working to obtain the best return on their investment, large investors are increasingly looking towards Wall Street rather than the banking institutions. That is how the secondary mortgage market originated.

The secondary mortgage market consists of quasi government corporations. The largest are the Federal National Mortgage Association (AKA "Fannie Mae"), the Government National Mortgage Association (AKA "Ginnie Mae"), and the Federal Home Loan Mortgage Corporation (AKA "Freddie Mac"). These corporations buy groups of existing mortgages from lending institutions, so that the lending institutions will have more money to originate more mortgage loans. Then they turn around and sell bonds ("mortgage backed securities") on Wall Street, primarily to large investors, such as insurance companies and pension funds. Most mortgages originated today are sold to Fannie Mae, Freddie Mac or Ginnie Mae.

The differences between the various types of lenders has to do with how each company operates.

Savings and loans and commercial banks keep some of the mortgages they originate in their own portfolio, selling them only when they need more cash. Mortgage Bankers sell all their loans once they have a amassed a certain dollar amount and Mortgage Brokers sell them instantly.

Since S and L's and commercial banks like to keep some of their loans, they like to originate adjustable rate mortgages. That way their depositors do not have to assume the long term interest rate risk. Mortgage bankers and mortgage brokers will originate all types of loans because they are sold quickly.

When the mortgage bankers sell their loans they usually keep the "servicing" and get paid to perform that function. Servicing includes accepting the mortgage payments, paying the taxes and insurance, providing customer servicing and record keeping, handling delinquencies, and forwarding the funds on to Fannie Mae, Freddie Mac or Ginnie Mae. Servicing is a numbers game, to make any money, the mortgage bankers need a lot of mortgages to break even, usually at least $40 billion. Servicing can, and often is, sold. (That is when you are notified that your "mortgage" has been sold, and to start making payments to a new company.)

Now that you understand the major differences in the types of lenders, which one is for you? Well, like most questions in life, it depends.

If you have a very close relationship with your bank or S and L and your financial situation is unique they may originate a "non-standard" mortgage for you. Since they are loaning their money they can make the rules any way they want, but since they can't sell the loan, they will usually charge you a much higher interest rate.

Otherwise a mortgage broker is preferable. A mortgage broker represents a variety of mortgage bankers and can "shop" your mortgage to many mortgage bankers, obtaining the best rate and service for your needs. A recent study commissioned by the National Association of Mortgage Brokers reported that mortgage brokers today originate nearly one half of all mortgage loans.

I hope this has been helpful. Please feel free to contact us if you have any questions.