Is a mortgage co and a bank the same when it comes to having too many foreclosures on their books?

Question

Are foreclosures a liability to mortgage companies the same way they are to banks?

Answer 1

The term "mortgage company" is broad, so the question is hard to answer.

Mortgages are sold by two types of organizations. Mortgage bankers lend their own money. Mortgage Brokers arrange for a loan between a borrower and a lender, but do not lend their own money.

It gets even more confusing.

Some lenders close loans in their own name and immediately sell the closed loan to a larger lender. Many of us close with a local bank, only to be told one month later that our loan has been sold to another lender. The first lender, who originally closed and funded the loan, is called a correspondent lender. The lender that purchased the loan is called an investor lender.

Both correspondent lenders and wholesale brokers sell to the same investor lenders. Often there are two different channels to the investor lender, one for correspondent lending, the other for wholesale. And when the investor lender closes loans in its own name, that is a wholesale transaction, just like when a broker arranges the loan.

Making it even more complicated, some investor lenders sell their loans to the GSEs, Fannie Mae and Freddie Mac. Others keep the loans on their books.

And there are two additional catagories. Some small lenders sell loans directly to the GSEs. These are called direct sellers. And any organization that closes a loan can just keep the loan on its books, which is called a portfolio loan.

Now, to answer your question. The investor lenders and the GSEs are the ones that will have foreclosures on the books. They have virtually the same incidence of foreclosure. But when you look at who originated the loans, broker loans foreclose at a much higher rate. But keep in mind, that is likely because brokers deal with the more difficult loans in the first place. Whether it is a wholesale or correspondent loan, all loans that wind up with an investor go through the same underwriting scrutiny.

Also keep in mind, subprime loans default at a much, much higher rate, so subprime lenders win when it comes to thie highest foreclosure rates. Or lose.

Hope this answers the question.

Answer 2

Mortgage companies generally don't fund the loans the originate, unless they are themselves a bank. Kinda confusing, I know, but it does happen. But, generally, mortgage companies don't have forclosures because they usually just find a lender for a client, and that lender takes the risk.

Answer 3

Yes. No lender wants to keep them on their books