What Is a Wholesale Mortgage Loan?

Wholesale Loans

• A wholesale loan is a base loan package that one lender creates and then sells to a broker or other organization. The wholesale term refers to the price of the loan, which is the lowest price that the loan will ever be offered at. Borrowers themselves rarely see this price, since it is offered only to other organizations that purchase the loan as a member of the supply chain. The wholesale price is positioned so that the creators or originators of the loan can make a profit selling it, but still remain competitive.
  
  

Broker Process

• Mortgage brokers are one of the most common buyers of wholesale loans, and typically act as retailers for interested borrowers on the market. A broker is an agent that represents the borrower and seeks out many different loan packages to find the best one. In this case, the best one is usually the mortgage with the lowest rate and most useful terms for the borrower's financial goals, but there is a catch. Brokers will often use wholesale lenders, but add their own costs, or markup, to the loan. This results in a mortgage that borrowers have to pay common market costs or even higher fees for.
  
  

Loan Officer Process

• Sometimes banks themselves will also purchase home loans from other banks or financial institutions. This works in ways similar to the mortgage broker process, but banks offer these loans through a loan officer that works only for the bank, instead of a broker that operates an independent business. Loan officers can only offer loans that the bank itself deals in and will also charge processing and closing fees on behalf of the bank, but borrowers may be able to find better deals with loan officers than with mortgage brokers.
  
  

Considerations

• The wholesale loan business is primarily a concern of lenders. Because additional processing fees are always added to them, they rarely represent any opportunity or cost savings for the borrower. Borrowers should search for the loan options that make the most sense for them, preferably with the lowest rate. In this search the wholesale mortgage cost can prove a good base reference, but borrowers should not put too much emphasis on it.