What type of lender uses its own funds to close loans but generally does not service those loans?

The correct answer is that a correspondent lender uses its own funds to close loans but typically does not service those loans. Correspondent lenders play an intermediary role between borrowers and larger lending institutions. They have the ability to originate loans using their financial resources, allowing them to close loans quickly and efficiently.

Once the loan is closed, correspondent lenders usually sell the loan to a larger financial institution, such as a depository bank or a mortgage company, which then takes on the servicing responsibilities. This allows correspondent lenders to maintain liquidity and reinvest their funds in further loan origination without the long-term commitment that comes with servicing.

In contrast, other types of lenders, such as retail lenders, generally engage directly with consumers and often service the loans they originate. Wholesale lenders operate through brokers and typically do not originate loans directly to consumers but may have different servicing practices. Direct lenders originate and fund loans directly with their own money, and they may also service those loans. The key distinguishing factor for correspondent lenders is their model of closing with their own funds and quickly transferring servicing responsibilities after closing.