A wholesale mortgage lender is a popular choice for borrowers who want a more personal experience with cheaper rates. While options for borrowers have decreased since the housing crisis, there are still many diverse ways to obtain a mortgage.
Understanding Wholesale Mortgage Lending
A retail lender, or direct lender, reaches out to consumers with loan officers in local branches who complete loan origination functions. Wholesale lenders, on the other hand, fund mortgages acquired through a broker who works outside of the company. A mortgage broker works much like a matchmaker: They match borrowers with lenders. A broker reviews the borrower's financial information, looks over several lenders, and matches the borrower with the lender who will provide the best rates and terms.
A wholesale lender works using mortgage brokers who sell loans on the secondary market. While a wholesale mortgage lender originates and services the loans, much like a mortgage banker, this type of lender works with independent brokers and loan officers to originate the loan. The brokers work on the retail end with borrowers. Once the mortgage is secured, the deal is sent to the lender for underwriting and processing.
Many large mortgage providers continue to operate wholesale divisions, but it is more common to find wholesalers through independent organizations since the housing crisis.
Advantages of a Wholesale Mortgage Lender
Obtaining a mortgage through a wholesaler, rather than a direct retail method, offers several advantages. With wholesale mortgage lending, it is much easier to shift interest rates downward, which results in a lower mortgage rate for the borrower.
Yield Spread Premium is the primary method for driving down rates from wholesalers. This is a form of compensation that a mortgage broker receives from the lender, and it is paid to brokers by the wholesale lender to save consumers from paying additional processing fees. Sale of the loan on the secondary market also provides fast profits, which further decreases the risk in wholesale lending and allows borrowers to take advantage of lower interest rates.
With wholesale lending, an independent broker usually replaces a traditional mortgage banker. Many borrowers prefer dealing with a single broker for a more personalized lending experience than applying for a loan with a large retail bank. A broker can usually tailor a loan more to the borrower's needs and preferences, and their extensive work with different types of lenders gives them a greater insight into the lending process. This can also result in better terms for the borrower.
Many home buyers also prefer to work with an upfront mortgage broker, who fixes total compensation and passes through the wholesale prices of the loan, which are disclosed to the borrower. The borrower may then decide the combination of interest rates and points they prefer to pay. When compensation is fixed, mortgage brokers do not have any reason to conceal payments they receive from the lender.
Working with the right mortgage broker and taking an unorthodox approach to buying a home can increase your chances of getting a lower mortgage rate and better repayment conditions.