A new type of mortgage provider has entered the UK market that is able to lend large sums of money w...
A new type of mortgage provider has entered the UK market that is able to lend large sums of money without having a balance sheet to match.
It's called a correspondent lender and some onlookers suggest its impact on competition in the UK mortgage market will be substantial.
Correspondence lenders' roles are relatively straightforward. Funders outsource virtually every piece of administrative and underwriting work to the correspondent lender, who completes the loan under pre-agreed criteria between the two parties. What the funder receives back, on completion, is the loan on its balance sheet and the registered title.
The process gives funders access to subprime or non-conformant customers without having their brand directly associated with such a market for fear of tarnishing its image.
The funder also benefits from less processing work, incurs no origination costs and should enjoy higher margins because correspondent lenders are likely to target niche markets, including the growing army of non-conformant borrowers, and charge premium rates.
High Street Home Loans is one correspondent lender operating in the UK.
Correspondent lenders originated in the US at least 20 years ago and the top players there, which represent around 75% of their respective market, lent more than $180bn in 1999, a figure which is growing by around 15% a year, according to the Mortgage Bankers Association of America.
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