Commercial Loans Blog

What is a Correspondent (Commercial Mortgage) Lender?

Posted by George Blackburne on Mon, Aug 22, 2011

Whenever a mortgage company boasts to you that they are a correspondent lender for so-and-so bank, alarm bells should go off in your head.  Warning, Will Robinson, Warning!  We have a probable liar here!  Ninety percent (90%) of the mortgage companies that boast that they are correspondent lenders are full of beans. 

Here's another example of a common lie in the commercial mortgage finance industry: "We are merchant bankers."  Sure you are.  Ninety-nine percent (99%) of the mortgage companies that boast that they are merchant bankers are also full of beans.  A real merchant bank is usually a subsidiary of a life insurance holding company or a bank holding company that is funneled money by the profitable holding company to make go-go investments, like mezzanine loans or equity investments.

Going back to the subject of correspondent lenders, here's what a real corespondent lender is:  A correspondent lender is the eyes and ears for a long-standing lender in a particular market; say, Boston, New York City, or the Los Angeles area.

Correspondents get paid by being awarded the loan servicing rights, typically around 12.5 basis points (1/8th of a point) per year.  Therefore, the fastest way to bust a blowhard is to ask him if his commercial mortgage company services these loans for so-and-so bank.  Almost invariably these blowhards do NOT service any loans.  They are just garden variety mortgage brokers, and dishonest ones to boot. 

A lot of life insurance companies use correspondents because it is economically infeasible for a small-to-medium-sized life insurance company to have boots on the ground in every desirable commercial lending market in the country.  I have never run across any other type of commercial mortgage lender, other than life insurance companies, that uses correspondents.

 

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Topics: correspondent lender