What role does Smalltown Bank assume when it makes a loan to a homebuyer and then sells it to Bigcity Bank?

When Smalltown Bank makes a loan to a homebuyer and then sells it to Bigcity Bank, it is acting as a correspondent lender. The correspondent lender originates mortgage loans in its own name, using its own funds, and then sells those loans to larger financial institutions, such as Bigcity Bank, to free up capital for additional lending. This role allows Smalltown Bank to serve its local market and offer mortgage products without needing the extensive financial resources of larger banks.

In contrast, a mortgage banker typically focuses on originating loans and maintaining them rather than selling them shortly after origination. A mortgage broker acts as an intermediary between borrowers and lenders, facilitating the processes but not taking on the lending function themselves. A wholesale lender generally provides loans to mortgage brokers who then offer them to consumers, which is not the scenario described in the question. Therefore, the role of correspondent lender is the most accurate in this context.