Types of Mortgage Lenders

Every Lender will claim their type of institution is best however, in reality the quality of the person you are dealing with determines the outcome. 

Mortgage Broker
Mortgage brokers represent their clients to find the best mortgage loan from several wholesale mortgage banks. Because of this, In most cases mortgage brokers offer the widest variety of home loans.  Clients receive very competitive rates because the broker seeks the lowest price from many wholesale lending sources and requires a smaller "markup" than large institutions.  Because I am a mortgage broker I am not an impartial writer but the lead paragraph is your best guide.

Correspondent Lenders
Correspondents are similar  to mortgage brokers, except that there is usually a very strong relationship between the correspondent and one sponsor (wholesale lender).
Correspondent is usually a term that refers to a company which originates and closes home loans in their own name, then instead of selling those loans in pools, they sell them individually to a larger lender, called a sponsor. The sponsor acts as the mortgage banker, re-selling the loan to Ginnie Mae, Fannie Mae, or Freddie Mac as part of a pool.

Banks and Savings & Loans
Banks and savings & loans accept deposits and operate as portfolio lenders, mortgage bankers or brokers, or combinations of all types.

Credit Unions
Credit Unions usually often operate as correspondents, although a large credit union could act as a portfolio lender or a mortgage banker.

Direct Lenders
Lenders are considered to be direct lenders if they fund their own loans. A "direct lender" can range from the largest lender to a very small lender. Banks  have deposits they can use to fund loans with, but they usually use "warehouse lines of credit" from which they draw the money to fund the loans. Smaller institutions also have warehouse lines of credit from which they draw money to fund loans.

It used to be easy to distinguish a direct lender because loan documents were drawn up in their name, but this is no longer the case.  Even the tiniest mortgage broker can fund loans in their own name.

Portfolio lenders
An institution which lends its own money and originates loans for itself is called a "portfolio lender".   This is because they are lending for their own portfolio of loans and are not concerned with having to immediately sell the loans in the secondary market.   Because of this, they don't have to obey Fannie/Freddie guidelines and can create their own rules for determining credit worthiness. Usually these institutions are larger banks but they can also be a group of investors.

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