What is correspondent lending?

When you buy a home and begin the financing process, applying for a mortgage is a fairly uniform affair – it differs little whether you apply through a correspondent lender, mortgage broker, or your local bank. You’ll fill out roughly the same forms, submit the same documents, and go through the same credit checks.

However, after you close on your loan, what happens to your mortgage can change depending on what type of lender you have. In many cases, especially when you borrow from a correspondent lender, your new mortgage will be sold to another private financial organization or a government-backed entity.

But don’t worry. This typically changes nothing for you; in fact, often you won’t even know.

What is correspondent lending and how does it work?

Correspondent lending happens when a lender originates and funds a mortgage but then sells it – typically to Fannie Mae or Freddie Mac or a government entity like the Federal Housing Administration (FHA) or Department of Veterans Affairs (VA). These agencies then will package the mortgages and sell to investors as mortgage-backed securities.

1. A lender funds your loan. Once you close on your mortgage, the lender transfers money that lets you buy the home. From there, you begin making monthly payments as agreed.
2. The lender holds your loan for a short period of time. After closing, the lender briefly keeps your loan on its books. You may get your first statement and set up your payment method.
3. The lender sells your loan to Freddie Mac, Fannie Mae, or a government program. Behind the scenes, without you knowing, your loan is typically sold to one of these major institutions. This doesn’t change your interest rate, loan terms, or payment amount.
4. The lender recoups their investment so they can offer more loans. By selling the loan, the lender gets the funds they used to make your loan back. That allows them to make new loans to others.
5. The lender may continue to service your loan, even though they sold it. Often, the same lender will still handle your monthly billing, payment processing, and customer service. So everything feels the same to you, even though your loan is owned by someone else.
6. You continue to make your agreed-upon payments until the mortgage is paid off or you refinance with another lender. Whether the loan is sold once, multiple times, or not at all, you keep making payments as usual, unless you choose to refinance.

To help put this in context, let’s move forward with an example. Let’s say an eligible veteran has just been discharged from the military and is looking for their first home. They choose to work with Rocket Mortgage.

We take their application, collect all necessary documentation, schedule an appraisal and handle all the underwriting that needs to be done for them to qualify. When the loan closes, we provide the funding.

Within a few months after the loan closes, we sell the loan on the secondary market to the VA who then makes their money by putting that mortgage in a mortgage-backed security (MBS) to sell to investors on the bond market. We take the money we got from the VA and use it to make more loans to aspiring home buyers or people looking to refinance to accomplish a goal.

Because Rocket Mortgage is also a servicer, our relationship with the borrower doesn’t end when the loan is sold and the loan terms stay the same. We forward principal and interest payments to the MBS investors and also maintain our client’s escrow account if they have one.

Correspondent lender vs. mortgage broker: What’s the difference?

When you search for a mortgage, you have choices. One of them is whether to work with a mortgage broker. Here’s a quick breakdown of the difference between a mortgage broker and a correspondent lender.

Correspondent lender

A correspondent lender handles all the functions associated with mortgage origination. They can take your application, underwrite your loan to make sure you qualify, and fund the loan.

Mortgage broker

A mortgage broker will take your application and collect all necessary documentation from you. However, their role is to shop your application around and make sure you get the best deal you possibly can given your qualifications. Once they’ve found a lender to work with you, that lender does most of the heavy lifting involved with actually making your loan, including underwriting and making sure it gets funded.

Correspondent lenders like Rocket Mortgage often work hand in hand with mortgage broker partners. These mortgage brokers provide a face-to-face connection in the community, and clients can meet with them to understand their goals. At the same time, Rocket Mortgage provides underwriting and funding services that a local partner may not have the capital or staff for.

Who can use a correspondent lender?

Since correspondent lenders work with a variety of mortgage investors, you can find loans for many home buying scenarios. This includes purchasing single-family homes, condos, multifamily properties, second homes, and investment properties. This makes correspondent lenders a good choice for a wide cross section of the public.

The pros and cons of using a correspondent lender

There are numerous benefits to working with a correspondent lender, but there are pain points to be aware of as well.

Pros

• Wider variety of products: Since correspondent lenders work with a variety of mortgage investors, they may have a wider variety of products available than a portfolio lender like a credit union or other bank that might hold the loan on their books.
• Knowledgeable on approval guidelines: Because of the established relationships with so many mortgage investors, a correspondent lender is likely to have a good idea of the different conditions that need to be met for approval as well as exceptions to any guidelines that may be dependent on personal circumstance.
• Experienced with mortgages: When you go with a correspondent lender, what you’re getting is all the accompanying connections and experience. With a wide portfolio of options, a correspondent lender is likely to be able to help you find a desirable mortgage that meets your specific situation.

Cons

• Extra fees: Some lenders charge extra fees. Make sure you're aware of how much you're paying and that everything is broken down and explained in a way that makes sense.
• Policies must be followed: Because correspondent lenders are selling to major mortgage investors, those investors have policies that need to be adhered to. If a loan is not up to standards set by the investor agency, the loan can’t be originated.
• Be sure to read the reviews: Read the reviews when you’re looking for a reputable lender. It’s worth noting that Rocket Mortgage has earned the top spot in J.D. Power’s Mortgage Servicer Satisfaction Studies more than any other brand.

The bottom line: Correspondent lenders make mortgage shopping easier

There are many benefits, as well as a few potential drawbacks, to correspondent lenders. They give you a wide variety of loan choices and make it possible for more people to get mortgages and own homes.

Most of the time, the fact that your correspondent lender sells your loan after it funds will remain unnoticeable. Your loan terms will remain the same and you’ll make your payments as usual. A win for all involved.

When you’re ready to buy a home, Rocket Mortgage can help you get the best loan for your needs. Apply today.

Rocket Mortgage is a trademark of Rocket Mortgage, LLC or its affiliates.

Rocket Mortgage has won more awards than any other brand in the J.D. Power U.S. Mortgage Servicer Satisfaction Studies. This customer satisfaction study has been conducted annually from 2002 – 2025. Visit JDPower.com/Awards for more information.