The real estate lending industry has grown substantially over the past years and is approaching $4 trillion in outstanding loan balances. The total real estate debt in the country is the largest in the world, second only to the United States government. The residential real estate lending industry is comprised of two distinct areas: the primary market and the secondary mortgage market; there are a host of other ancillary entities that service and support the real estate lending process as well. We will discuss each of these areas below.

Primary Mortgage Market

• Identifying appropriate loan programs, based on the consumer's needs;
• Completion of the loan application form;
• Obtaining documentation necessary to validate credit and property value;
• Compiling supporting information in a package suitable to submit to lenders;
• Communications between the lender and the consumer.

The Major Players

Mortgage Brokers:
One of the major providers of real estate loans are mortgage brokers. They have access to a wide range of mortgage lending products through relationships with mortgage bankers and depository institutions. Because mortgage brokers are approved through multiple lenders, they have the flexibility to place most loans.

Mortgage brokers employ loan officers, who, as described above, work directly with the consumer in obtaining home financing. They assist the consumer in completing the application and loan selection process and direct them to suitable lenders to fund the mortgage. Occasionally, mortgage brokers have relationships with mortgage bankers which allow them to underwrite and fund the loans.

Mortgage brokers charge a fee to assist the borrower with the loan placement. The fee is paid to the broker when the loan funds. Mortgage brokers are typically regulated by state agencies, such as the Department of Real Estate.

Mortgage Bankers:
Another major participant in the primary market are mortgage bankers. Mortgage bankers are financial intermediaries that review the creditworthiness of a borrower, provide the funds for the loan and quickly sell those mortgages into the secondary mortgage market. There are two kinds of mortgage banking operations: retail and wholesale. Retail mortgage bankers employ loan officers that perform the same functions as mortgage brokers by assisting borrowers with the application and loan selection process. Wholesale mortgage bankers do not employ loan officers, but obtain their business directly from mortgage brokers. There is no difference in fees charged by mortgage brokers accessing lenders on a wholesale basis and those charged by retail lenders who use their own loan officers.

Mortgage bankers typically do not have the resources to portfolio loans. Therefore, they sell the mortgages they fund to secondary market investors, such as Fannie Mae or Freddie Mac, or transfer the loans to an affiliate company, such as a financial depository institution, to be held in portfolio. Although the loan is sold shortly after funding, mortgage bankers may elect to service the loan on behalf of the secondary market investor acquiring it. Servicing includes collecting the monthly payments from consumers and remitting the funds to the appropriate investors. Mortgage bankers receive a fee for this service directly from the secondary market investors that ranges from .25% to .5% per year.

Sometimes mortgage bankers will sell the loan servicing rights to another mortgage banker or financial institution. When this occurs, borrowers are notified that the loan servicing has been sold and will receive instructions on where to make their monthly payments.

Mortgage bankers are regulated by state agencies, such as the Department of Real Estate or the Department of Corporations. Mortgage bankers that are subsidiaries of financial depository institutions are regulated by their parent company's primary regulatory body.

Financial Depository Institutions:
Historically, the dominant sources of mortgage loans have come from the depository institutions, such as savings and loan associations, savings banks and commercial banks. Savings and loan associations, in particular, have provided a large percentage of mortgage loans to consumers over the years. These depository institutions gather funds from their customers through checking and savings accounts and certificates of deposits (CD's). These funds are then used to make loans, including real estate, auto, business, or personal in nature. In addition to using customers' deposits to make loans, many depository institutions borrow from the Federal Home Loan Bank, the Federal Reserve Bank or other depository institutions and use the proceeds to make loans to their customers. Financial depository institutions are strictly regulated by government agencies, such as the Federal Reserve Board, Office of Thrift Supervision, Office of Comptroller Currency and other state regulatory agencies.

Ancillary Services

There are many ancillary services that support the mortgage lending process. Some of the more visible are:

Real Estate Broker and Real Estate Sales Associate:
These professionals assist consumers in the buying and selling of real estate. The real estate professional is usually the first contact consumers have when deciding on a real estate loan, who in turn will refer their clients to a mortgage professional.

Title Company:
Title companies perform a title search on the property and issue a title policy for the lender and the purchaser to insure that there is a valid mortgage lien against the property and title is clear.

Closing Agent:
This entity facilitates the closing of a mortgage loan by acting as an impartial third party. The closing agent can be an escrow company, an attorney or title company agent depending on the region.

Appraiser:
This professional evaluates the market value of real estate for the buyer and the lender.

Credit Reporting Agency:
These companies research the credit records of consumers and memorialize the findings in a factual credit report. They have access to databases that store credit information on most consumers in the country. Additionally, they search the public records for derogatory items that may have been filed against a consumer such as judgments, bankruptcies, and liens. Frequently, credit reporting agencies will research other items, such as place of employment, banking relationships and previous residency.

Private Mortgage Insurance Company (PMI):
When the loan exceeds 80% of the value of the property, lenders usually require private mortgage insurance that insures the lender in the event a borrower defaults and the property ends up in foreclosure. There are a small number of companies that provide this insurance. Usually, borrowers pay for this insurance as part of the monthly payment.

Hazard Insurance Company:
Lenders require hazard insurance that covers the outstanding loan on the property. There are many casualty insurance companies that provide hazard insurance In most cases, the lender is the loss payee on the policy and will receive the proceeds on a claim. The proceeds will then be used to pay for the repairs.