Understanding Table Funding, Correspondent Lending, and Direct Lending

November 3, 2021 by Nema Daghbandan, Esq.

What is the difference between Table Funding, Correspondent Lending, and Direct Lending? Terminology can vary widely within the industry and sometimes the terms can be used incorrectly, synonyms used interchangeably or applied informally to mean something else. This article aims to clarify the terms and their proper usage.

Table Funding

Table Funding is sometimes also referred to as Wholesaling or White Labeling.  When a Broker or Correspondent does not have enough money to fund their own loan but wants to give the appearance that they are a direct lender they will usually enter into a table funding agreement with a different lender.

Technically, a table-funded loan means that the lender named in the Note/Deed of Trust is different than the actual party who provided the loan funds (lender). In a true table funded arrangement, the broker/correspondent is named as the lender in the loan documents, and an Assignment of the Loan is included in the document package assigning the loan to the true lender and the borrower never knows this is happening.

However, clients use this term loosely and oftentimes table funding means wholesale lending. Wholesale lending means that there is a broker who is arranging the loan (and may falsely tell the borrower they are a direct lender) but in reality, the real lender is the named lender on the loan documents, and they are simply brokering a loan transaction to the real lender even though they are claiming to be the real lender.

Here is a strong example of a wholesale lender using a “white label” approach. Company A intentionally sets up a second company called “ABC Loan Funding Inc.” to allow brokers/correspondents to broker loan transactions to them. All the while, the broker simply states that their lending company name is something else. (i.e. labeling the broker with affiliation as a lender).

Make sure to understand what the client refers to by table funding if they use this term. Are they implying that they want a broker to be the named lender and that a subsequent assignment (true table funding) or are they simply brokering a loan to a lender and pretending to be a source of funds (i.e. wholesaling and/or white labeling)?

Correspondent Lending

Sometimes lumped together with Broker lending, a broker or correspondent is a company or individual who does not have enough money to make a loan so they will use a lender’s loan funds to fund a loan.  Correspondent lenders typically have the ability to do all of the steps in-house, including originating, underwriting, and issuing. 

Direct Lending

The terms Lender and Balance Sheet Lender may be used interchangeably when referring to a Direct Lender.  When a client states they are a Direct Lender or simply states they are a lender they are usually implying that they have enough money to make loans using their company’s money. Most mortgage fund clients are direct lenders which means that they have investors who give them money and the company then loans that money out to borrowers for private lender loans.  Typically, Direct Lenders specialize in certain types of loans rather than diversifying.  Also, they typically don’t split the loan into multiple lenders, but rather manage the loan in its entirety.

Have questions about how to operate your lending business or how to interact with others in the industry? Geraci Law Firm is here to help. We can assist with structuring your own lending practice in a compliant fashion and help you navigate how to work with others in the industry.

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