A commercial mortgage broker is an independent loan originator who can take his clients' commercial mortgage loan requests anywhere. He is not a corresponent for any particular lender.
It doesn't take a lot of capital to establish a commercial mortgage brokerage operation. All a broker needs is a desk, a phone, a computer, a copier, and a fax machine. In fact many very successful commercial mortgage brokers work out of a bedroom in their homes.
In addition, most states do not require a license to broker commercial mortgage loans. As a result of this ease of entry into the business, at least ten thousand men and women become commercial mortgage brokers every year. They are ubiquitous (everywhere).
A borrower will use a commercial mortgage broker to help him locate the cheapest commercial mortgage loan in the marketplace for his particular deal. Since every commercial mortgage loan is slightly different from the next, and since just about every commercial mortgage loan has a black hair (flaw), many commercial mortgage borrowers in fact need the help of a commercial mortgage broker.
Commercial mortgage portals, like C-Loans.com, however, are making it easier and easier for commercial mortgage borrowers to find obscure but attractive commercial lenders on their own. This saves the cost of a loan brokerage commission that must often be paid to a commercial mortgage broker.
In contrast, a commercial mortgage banker requires a much larger operation. True commercial mortgage bankers either fund the deals using their own money and/or service the loans after the commercial loans are made.
The most common type of commercial mortgage banker is the life insurance company correspondent. A life insurance company (often abbreviated to life company) may be based out of Hartford, Connecticut but may be willing to make loans nationwide. Rather than set up expensive loan offices nationwide, the life company will often choose a local commercial mortgage banker in each of the major cities targeted by the life insurance company.
These commercial mortgage bankers will serve as the correspondents for the life insurance company. The word correspondent means, "One that has regular business dealings with another, especially at a distance." Banks and life companies are very careful before designating any commercial loan originator as its correspondent because a lender is liable for the acts of its correspodents.
The local correspondent will enjoy an exclusive territory. If your property is in Los Angeles, for example, and you want to get a loan from Dog Catchers Life Insurance Company (imaginary company), your deal will be sent to the Los Angeles correspondent for Dog Life for underwritting. The Los Angeles guys know the L.A. market and will make sure the life company doesn't end up making a loan in an economically-depressed war zone.
After the loan is made, the Los Angeles correspondent for Dog Life gets to service the loan for Dog Life for 12.5 basis points (one-eighth of a percent) annually. This doesn't sound like a big deal at first, but 12.5 basis points on a $10 million loan is $12,500 annually just for collecting the payments.
Another type of commercial mortgage banker is the true CMBS (conduit) lender. The commercial mortgage banker will fund its loans using its own money and then hold the loans in inventory until it has enough loans to put them into a pool and securitize the loans.
Unfortunately many commercial mortgage brokers will masquerade as commercial mortgage bankers because they close the deal in their own names and then immediately - in the same escrow - sell the loan off to a long-term buyer. This is called table funding. Because the loan is sold off immediately, the commercial mortgage broker really doesn't have his own money at risk. He is not really "banking" the loan.
This situation is so misleading that the State of California has actually made it illegal to table fund a commercial loan. So many commercial mortgage brokers were running around, boasting to the world that they were commercial mortgage bankers, taking good faith deposits (and keeping them), when they lacked true Loan Commitee authority, that the State of California put it's foot down and banned the practice.
To further blur the distinction between commercial mortgage brokers and commercial mortgage bankers, many top level commercial mortgage finance executives, out of respect, use the term "commercial mortgage banker" to describe any commercial loan originator!
But to be precise, a commercial mortgage banker is one who either funds his loans using his own money (genuinely has money at risk) and/or who services the loan for his investor.
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