AMG Mortgage

Wholesale Lending – Benefits and Risks

As a loan officer and preparer for several years with AMG Mortgage, I had the opportunity to learn many of the banking industry’s insider techniques and processes related to wholesale lending industry.

1.) Competitive Rates

Foremost, among the advantages of wholesale lending options gleaned from my experiences and knowledge was access to wholesale lending rates commonly below interest rates offered by retail banks. For most prospective loan applicants and individual borrowers, a wholesale lender via mortgage brokers and entities, can usually beat the interest rates at competing local banks and lending institutions.

Mortgage specialists that deal with wholesale lenders commonly have the ability to negotiate or lock in rates from a matrix of different rates on any specific date. Interest rates for prospective loans fluctuate daily, or sometimes hourly, at wholesale lending institutions, and the mortgage specialist has the ability to lock in any of the various rates offered at a specific time.

However, there is a dark side to these highly competitive fees and rates, mortgage brokers can be compensated based on the interest rate the borrower agrees to. The higher the interest rate, the higher the mortgage broker’s compensation. When you consider interest being applied over decades, a small bump in an interest rate can mean tens of thousands of dollars to the prospective lending institution. 

In order to limit the risk of a higher than necessary interest rate, a borrower should be involved with the rate selection and understand their financial position. High credit scores, low loan to values due to large down payments, low debt to income ratios due to low monthly expense obligations against high monthly income, make for highly desirable loan packages for lenders, use this leverage to insure you receive the lowest rate possible.

Additionally, be proactive in locking in your interest rate. Ask your lending specialist to show you the wholesale lending rate matrix currently offered by them. Reinforce your preference to your lending specialist by asking for the “par” rate; or perhaps even, look to “buy down” your interest rate. The rate matrixes offered, often allow for lower interest rates below par, but require an upfront payment. Just like a small bump up in interest rates can provide the lender tens of thousands of dollars over the life of a loan, so too can the “buying down” of an interest rate save tens of thousands of dollars for the borrower. Understanding this back end incentive and your financial picture can ensure you receive the most competitive rate available to you.

2.) Access to Many Lenders

Mortgage brokers and entities have access to a multitude of different lenders, where a specific lender; such as your local bank institution, will only offer their specific lending products. As competition breeds lower prices, so to does competition reduce interest rates and fees by lenders. Also, the variety of options to submit your prospective loan to different lenders with different levels of risk tolerances means a mortgage broker can often get you a loan when your local banking institution cannot; albeit at higher than market interest rates. The flexibility of lending options tailored to individual circumstances is often the most powerful reason to seek out a mortgage broker or entity.

3.) Lending Expertise, Relationships, and Efficiency

Wholesale lending agents and entities can provide much more extensive advice and guidance during the entirety of the loan application and funding process. They know which lenders to prefer for each prospective loan. They often submit a loan to many different wholesale lenders to help insure approval. They are extremely adept at satisfying their various wholesale lending institutions underwriting requirements and documentation, as they work with them regularly and know the steps before they are presented. Wholesale loan specialists know what can be done to help improve your financial picture to better satisfy foreseen hurdles in the loan process. All of these benefits greatly increase the efficiency of the lending process for borrowers, and can provide knowledge, insight, and benefits that will be worth untold amounts as a borrower navigates the ins and outs of lending institutions.

Wholesale Lending – Benefits and Risks

In summary, during my years at AMG Mortgage, I learned that an altruistic mortgage broker with integrity and determination can provide the best prospective lending packages to a potential borrower, as well as, the ability to equip the borrower with razor sharp lending knowledge to help ensure they secure the most beneficial lending package for them.