It might surprise some to learn that there are two primary types of lenders. There are direct lenders such as your bank and mortgage bankers. Banks provide mortgage services to their banking customers. With a bank, someone might appreciate the convenience of getting a home loan at the same place they got their auto loan or credit card, but the exchange typically means higher mortgage rates for their customers. Their clients are essentially a captive audience. Retail banks know they don’t have to compete on rates or special loan programs but instead rely on client loyalty.
Mortgage bankers on the other hand only offer one service. That service is providing a home loan. Mortgage bankers compete with other lenders and provide the necessary funds for a new home loan from a line of credit. Both banks and mortgage bankers are considered retail lenders because they provide a product directly to the consumer. The other type of lender is a wholesale lender.
The Role of the Wholesale Lender
What’s a wholesale lender? Primarily a wholesale lender takes a different marketing approach when originating brand new loans for either a purchase or a refinance. That path means not marketing directly to the ultimate borrower but to utilize the services of a mortgage broker to do their marketing for them. How do mortgage brokers do that?
A mortgage broker will originate new mortgage loans from a variety of sources. Mortgage brokers can solicit business from their realtor base. From past clients. From financial planners and accountants. Mortgage brokers service these clients and earn their business. A mortgage broker gets access to home loans through multiple wholesale lenders. In this way, a mortgage broker can literally shop around for the ideal loan program being offered through a multitude of wholesale lenders. Not all lenders offer the very same suite of loan programs. Some can cater to a specific market niche while others like to expand their market base by offering different types of loan programs.
Advantages of a Wholesale Lender
The advantage a wholesale lender has is cutting the costs of marketing. Marketing is an expensive piece of overhead in any mortgage operation. Instead of a direct lender who pays for office space, utilities, personnel and other expenses, a wholesale lender lets a mortgage broker handle those expenses. In return, wholesale lenders are able to offer interest rates to mortgage brokers at rates below what the everyday borrower can access.
And it’s not just about rates. Wholesale lenders can identify a particular market niche, create a special loan program and introduce that program to their list of approved mortgage brokers. Perhaps a wholesale lender is known to specialize in VA lending. While VA loans are similar in their ultimate purpose they’re also a little different as it relates to paperwork, documentation and other qualifying guidelines. These wholesale lenders who specialize in VA loans contact mortgage brokers who take those loan programs and introduce them to their client base.
Wholesale Lenders and Mortgage Brokers Work Together
The effect is a mortgage broker has access to below-market rates and a wider range of loan program options. Wholesale lenders take advantage of the marketing prowess of an experienced mortgage broker. In fact, wholesale lenders employ customer service representatives whose primary job is to take care of the mortgage broker client. These customer service reps are the first call for mortgage brokers when there is a special scenario that needs to be discussed or an issue has come up on an existing loan program that needs some internal assistance. Wholesale representatives treat their mortgage brokers as their special customers, which in effect they actually are.
Over the past several years as various types of mortgage programs have been introduced, it’s much more efficient to offer different types of home loans to the retail borrower by working with a mortgage broker. Wholesale lenders have been around for years, it’s just that the average consumer is not aware of how they work and the true benefits wholesale lenders ultimately offer to the home buyer and those seeking to refinance an existing mortgage.
If you think you have a special situation that needs some help, that’s where I can help. Provide me with the details and I can help craft a home loan designed specifically for you using my database of wholesale lenders who offer perhaps the widest range of financing options in today’s mortgage marketplace.