Commercial Lender or Broker?


Save money for your clients by separating the real lenders from the intermediaries

It can be difficult enough to choose the best lending solution from the traditional banks, agencies, hard money options, and other marketplace and non-bank alternatives that exist in the small-balance commercial mortgage marketplace.  But the choice becomes even harder when you consider that some of the lenders you may be considering are not actually lenders at all.

It is not uncommon for brokers to market themselves as direct lenders and pose as lenders during a transaction and then sell the loan to a real lender at the closing table.  This practice hurts both the borrower and their broker – the borrower must pay additional fees and the broker’s reputation suffers if the true nature of the relationship comes to light.

Business owners and investors rely on brokers to act with their best interests in mind.  If your goal is to minimize costs for your clients and get them solutions that meet their specific needs, you’ll need to understand why brokers that behave like lenders are harmful and what you can do to tell the imitators from the real McCoy.

The problem with imitation lenders

Correspondent lenders behave much like brokers in that they don’t actually fund loans – the difference is that correspondents add unnecessary additional fees and costs.  Rebates are one of the common costs that are not disclosed.  This causes borrowers to be charged more without knowing why, and it leaves you at a major disadvantage when trying to win new business.

Borrowers who enlist the services of a mortgage broker accept that they will be charged a fee in return for the broker’s efforts.  But if they are not aware of a lender’s true nature, they are paying additional fees without their consent.  As their trusted advisor, you owe it to your clients to partner with lenders that actually fund their own loans.

How to spot the imitators

The difference between a correspondent and an actual lender isn’t always obvious.  To discover which is which, you’ll need to ask a few questions before committing to a partner.

  1. Does the lender employ their own underwriters?

True lenders employ underwriters that analyze loan submissions.  Correspondents, on the other hand, send the deals to their lender partner and have them conduct the underwriting instead.

Additional questions to be asked include:

  1. How many loans have they funded?
  2. How many loans do they have on their balance sheet?
  3. How many loans are they currently servicing?
  4. Do they have a warehouse line?
  5. Do they assign mortgages at closing?

If the answers for questions 1 – 5 are none or no, and the answer is to question six is yes, you are probably dealing with a broker posing as a lender.

Correspondents who disclose their business model are not a real issue for you and your clients – everyone involved has all the information they need to make a business decision.  But those who keep brokers and borrowers in the dark have the ability to overcharge without recourse.

Be on the lookout for these imitators and save your client money by partnering with a true small-balance commercial lender.

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