A lender of record is the financial institution or entity that originates and funds a loan, taking on the initial responsibility for the loan.
In the context of mortgages and personal finance, the lender of record is the primary institution that provides the funds to the borrower. This entity is initially responsible for underwriting, approving, and disbursing the loan. While the loan might later be sold or serviced by another company, the lender of record holds the original loan agreement and assumes the initial credit risk.
Here's a more detailed breakdown:
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Origination: The lender of record is responsible for the initial application process, including gathering the borrower's financial information, assessing creditworthiness, and determining the loan's terms.
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Funding: They provide the capital for the loan. This means they transfer the funds directly to the borrower (or to the appropriate party in the case of a mortgage, like the title company).
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Initial Risk: The lender of record assumes the initial financial risk associated with the loan. If the borrower defaults early on, the lender of record takes the first hit.
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Documentation: All loan documents (promissory note, mortgage/deed of trust, etc.) will initially identify the lender of record.
Why is it important to know who the lender of record is?
Understanding who the lender of record is can be important for several reasons:
- Knowing Who Approved You: Helps borrowers understand which institution initially believed in their financial profile.
- Understanding Responsibilities: Clarifies which entity is initially responsible for the loan and its terms.
- Tracking Loan Sales: Even if your loan is sold, knowing the original lender of record provides a historical record and point of reference.
In some cases, the lender of record may sell the loan to another institution shortly after origination. This is common in the mortgage industry. However, the original lender's role as the initial funder and underwriter remains significant. The servicing of the loan can also be transferred to a different company. Therefore, the lender you initially applied with might not be who you make your monthly payments to later on.
