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.
