Correspondent lenders are small lenders who do have the right to extend loans on their own risk and have the necessary funds to do so. After a loan is closed a correspondent lender will rarely keep it in their portfolio, selling it to a larger wholesale lender.
Sometimes it is hard for the borrower to tell the difference between a mortgage broker and a correspondent lender. One reader voiced frustration over the time it took to close his loan. “I know they have the money, so why don’t they just do it”, he asked. Near the start of the mortgage crisis, his lender was actually a mortgage broker with no money at all.
Banks such as HSBC exited correspondent lending in part because they could not trust the loans submitted from correspondents.