For background, the Federal National Mortgage Association (more commonly known as “Fannie Mae”), and the Federal Home Loan Mortgage Corporation (more commonly known as “Freddie Mac”), both buy mortgages on the secondary market, pools them, and sell them as mortgage-backed securities (“MBS”) to investors on the open market.
It is important to note that Fannie Mae and Freddie Mac do not directly “originate” loans in the primary market. They, along with loans made via FHA (also known as “Ginnie Mae”), are collectively responsible for purchasing most conventional-sized mortgage loan balances in the United States.
I say all this to say, no one is really reinventing the wheel when it comes to mortgage lending. These secondary marketing agencies purchase closed-loan mortgages from banks and non-bank lenders (such as Approved Funding, and other independent mortgage banks) after these originators do the processing, underwriting and funding directly with the customer.
With the above understanding, there are essentially three primary channels of mortgage ‘originators’ in the marketplace – depository banks, credit unions, and non-bank mortgage lenders. Last year, independent (non-depository) mortgage lenders like Approved Funding, did more business then depository banks and credit unions combined. Granted, if a big commercial bank would want to do a specific niche loan or offer a below-market rate for a particular category of borrowers, there is no doubt that they could “buy” the market. The problem for most consumers is knowing which bank has the biggest appetite at a given moment.
There is another category of loan originators in the marketplace, and that is the mortgage broker. Mortgage brokers cannot participate in this process, so they typically place their loans through banks or mortgage banks. Mortgage brokers, like independent mortgage bankers, fill a unique niche is finding outlets for loans that may not necessarily fit into the “perfect box” of a typical bank.
But it goes well beyond all of the above. Part of the success of independent mortgage brokers and mortgage bankers is that they can identify the “flavor of the month” at a given moment. When you find the right lender or broker, they would know which products are flexible with underwriting guidelines, which investors are sensitive to specific documents, and which mortgage aggregators are discounting their rates to buy volume.
Although Freddie Mac recently announced that mortgage rates have risen for three consecutive weeks, I am here to inform everyone that there are still plenty of opportunities. Rates are still very low and unlikely to spike too soon. Home values are at historic heights, and consumer debt (both mortgage and credit cards, and the like) are at historical highs as well. Whether its for debt consolidation or cashing out to invest in soaring stock markets or real estate endeavors, there are tremendous opportunities available today through creative financing.
As someone who lived through the highs and lows of the cycling real estate and mortgage markets, I have seen first hand that people can get things done with the right lenders. Not everyone is willing to lend, even in this environment, and it behooves everyone to find that creative, aggressive, and competitive lending partner that can maximize your opportunities.
Shout out and Happy Birthday to Renee Becker, Zev Brenner, Bradley Dock, Ruby Kaplan, Ruth Miron, Aline Smolanoff, and David Weisberg.
Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Approved Funding is a mortgage company offering competitive interest rates as well as specialty niche programs on all types of Residential and Commercial properties. Shmuel has over 20 years of industry experience, including licenses and certifications as a certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. He can be reached via email at [email protected]