Key Takeaways
A wholesale mortgage lender is an institution that funds mortgage loans and offers them through a third party, such as a bank, credit union, or mortgage broker. Wholesale mortgage lending requires borrowers to deal with an intermediary rather than a lender. Wholesale lenders can offer lower interest rates and more relaxed qualification requirements compared to traditional lenders.
There are many mortgage lenders out there, but they can be divided into two basic types: retail and wholesale. The difference is that retail lenders deal directly with individual borrowers, while wholesale mortgage lenders do not.
Instead, they source and provide mortgage funding through third parties, such as other financial institutions like banks, credit unions, and other lenders, or they partner with a mortgage broker, who works with individuals to find the right loan (sometimes at a discounted interest rate) and prepare the application.
Here's what you need to know about wholesale lending and what to expect if you borrow money from a wholesale mortgage lender.
How wholesale financing works
With wholesale lending, borrowers typically don't communicate directly with the company that makes the loan. Instead, they interact with a third party — another financial institution or professional. This third party is the person the borrower applies to and who communicates with the applicant throughout the loan underwriting process. However, it's the wholesale lender that sets the options and terms of the mortgage.
The wholesaler also technically owns the mortgage. And, once the loan is closed, the wholesaler typically sells the mortgage on the secondary mortgage market, freeing up capital to fund more mortgages.
Because wholesale mortgage lenders do not engage in consumer advertising or marketing and do not need to employ customer service representatives, they often offer more competitive interest rates and more flexible loan options and requirements than retail lenders.
Mortgage Wholesalers and Retailers
Key differences between wholesale and retail mortgage lenders:
Presence of an intermediary: Wholesale lenders don't work directly with borrowers and operate behind the scenes in lending. In contrast, retail lenders connect directly with borrowers. Limited mortgage options: Wholesale lenders usually offer a fairly limited selection of mortgages. However, when working with a retail lender (such as a bank or credit union), borrowers can usually choose from multiple mortgage products that the lender underwrites, services, and funds in-house. Additional financial products: Wholesale mortgage lending companies specialize only in mortgages. Retail lenders tend to offer other financial products as well, such as lines of credit, checking accounts, and business loans.
The Role of Mortgage Brokers in Wholesale Lending
If you want easy comparison shopping and someone to guide you through the lending process, the mortgage broker cum wholesale lender route may be right for you.
Mortgage brokers usually have an existing relationship with the wholesale lender. They act as a loan officer for the lender in a sense. You'll work with the broker to complete each step of the application process. Once your application is ready for review, the broker will coordinate with the wholesale lender's underwriting team to get approval.
A broker's role isn't just to help prospective borrowers apply for a mortgage; they also work to find the best mortgage for you. They can pass on your information to their wholesaler contacts so you can secure more favorable rates and terms than if you were to hunt for a mortgage on your own. Often, they'll present you with several options and help you choose between them.
Wholesale Mortgage Lending Process
Below is an overview of what you can expect if you choose to go the wholesale route through a mortgage broker.
Step 1: Contact the mortgage broker to complete the loan application and gather the necessary documents for the wholesale lender to make a decision. Step 2: The mortgage broker confirms that the application is complete and submits it to the wholesale lender for review. Step 3: Once received, a member of the wholesale lender's underwriting team will analyze the loan application and related documents, review your completions and make a lending decision. Step 4: If the application is approved, the mortgage broker will provide a commitment letter from the wholesale lender detailing the terms of the loan and any applicable conditions. Step 5: The mortgage broker coordinates with the wholesale lender to close the mortgage. If there are any conditions that the borrower must meet to close the loan, the mortgage broker will notify the borrower at this step. Step 6: Once all conditions are met, the wholesale lender will issue a “clearance to close” to the mortgage broker, who will notify the borrower. The borrower will remit the down payment and closing costs (including brokerage fees, if applicable) to the registrar just before closing. Step 7: At settlement, the borrower signs the loan documents to close the transaction. Step 8: The wholesaler provides the mortgage funds.
The Pros and Cons of Wholesale Mortgage Lending
If you are considering wholesale mortgage financing, keep these pros and cons in mind when making your decision.
Advantages of Wholesale Mortgage Lending
Potentially relaxed qualification requirements More competitive interest rates and flexible loan terms Personalized support from a mortgage broker
Disadvantages of Wholesale Mortgage Lending
No direct contact with lenders Mortgage broker fees (if applicable) Loans likely to be sold after closing
Top Wholesale Mortgage Lenders for 2023
Here are the 10 U.S. lenders with the most wholesale mortgage business as of 2023, ranked by dollar value of wholesale mortgage business (some also do retail).
Lender Wholesale Volume (Billion) Percentage of Wholesale Transactions Source: The Scotsman Guide United Wholesale Mortgage $12.29 100 Newrez LLC / Caliber Home Loans $11 15 loanDepot $8.23 12 Pennymac $6.94 6 Paramount Residential Mortgage Group $3.89 36 Angel Oak Mortgage Solutions $3.22 94 CMG Home Loans $3.19 15 Change Lending $2.93 44 A&D Mortgage $2.70 79 LoanStream Mortgage $2.61 95
Is Wholesale Mortgage Lending Right for You?
If your credit history isn't very good or special, getting a loan from a wholesale mortgage lender may be a good option, since mortgage brokers and other third parties have relationships with lenders and may be approved with less stringent requirements. Wholesale lenders may offer better terms and charge fewer or less closing costs because they don't have to spend a lot on advertising, loan officers, and overhead.
However, because you're not in direct contact with the wholesale lender, communication can be slower and seem more mysterious. Most mortgage brokers are commission-based, but some do charge a fee. Be sure to compare this cost with that of other lenders as you consider your options.
Additional reporting by Mia Taylor