Wholesale mortgage lenders: What they are and how they work

There are a bevy of mortgage lenders out there, but they come in two basic types: retail and wholesale. The difference is, while retail lenders work directly with individual borrowers, wholesale mortgage lenders don’t.

Instead, they fund mortgages and offer them through third parties, such as another financial institution, like a bank, credit union or other lender. Or, they partner with mortgage brokers, who work with individuals to find the right loan — sometimes at a discounted rate — and prepare the application.

Here’s what to know about wholesale lending and what to expect if you borrow money from a wholesale mortgage lender.

How wholesale lending works

In wholesale lending, the borrower typically doesn’t have direct contact with the firm putting up the money. Instead, the borrower interacts with a third party — another financial institution or professional. This party is the one the borrower applies through; it’s also the one communicating with the applicant throughout the loan’s underwriting process. But it’s the wholesale lender that sets the mortgage options and terms.

It’s also the wholesaler who technically owns the mortgage. And, once their loans close, wholesale lenders typically sell them in the secondary mortgage market to free up capital to fund more mortgages.

Because they don’t do consumer advertising and marketing, and don’t have to employ customer reps, wholesale mortgage lenders often offer more competitive rates and more flexible loan options and requirements than retail lenders.

Wholesale vs. retail mortgage lenders

The major differences between wholesale and retail mortgage lenders:

• Middleman presence: Wholesale lenders don’t deal directly with borrowers; they operate behind the financing scenes. In contrast, retail lenders connect with borrowers directly.
• Limited home loan options: Wholesaler lenders typically have fairly narrow home loan offerings. However, when working with a retail lender (such as a bank or credit union), borrowers can usually pick from multiple home loan products, which are underwritten, serviced and funded in-house by the lender.
• Additional financial products: Wholesale mortgage lending companies exclusively focus on home loans. Retail lenders tend to offer other financial products as well, like lines of credit, checking accounts and business loans.

The role of mortgage brokers in wholesale lending

If you’re interested in easy comparison shopping and having someone who can walk you through the lending process, the mortgage broker-and-wholesale lender route might be a good fit for you.

Mortgage brokers typically have existing relationships with wholesale lenders. They act as the lender’s loan officer, in a sense. You’ll work with the broker to complete each step in the application process. Once your application is ready for review, the broker will coordinate with the wholesale lender’s underwriting team for approval.

The broker’s role doesn’t stop with assisting the prospective borrower with their mortgage application. They also work to find you the best deal on a mortgage. Since they can shop your information around to their wholesale lender contacts, you could secure more competitive rates and terms than you would if shopping for a home loan independently. Often, they’ll present you with several options, and help you decide among them.

Wholesale mortgage lending process

Below is an overview of what to expect if you decide to go the wholesale lender route via a mortgage broker:

• Step 1: Connect with the mortgage broker to complete a loan application and gather documentation the wholesale lender needs to make a decision.
• Step 2: The mortgage broker confirms your application is complete and submits it to the wholesale lender for review.
• Step 3: Upon receipt, a member of the wholesale lender’s underwriting team analyzes your loan application, along with the supporting documentation, and verifies the entries to make a lending decision.
• Step 4: If your application is approved, the mortgage broker provides you with a commitment letter from the wholesale lender detailing the loan terms and any applicable conditions.
• Step 5: The mortgage broker coordinates with the wholesale lender to close your home loan. If there are any conditions the borrower must satisfy for the loan to finalize, the mortgage broker notifies the borrower during this step.
• Step 6: Once all conditions are met, the wholesale lender issues the “clear to close” to the mortgage broker, and the broker notifies the borrower. The borrower sends their down payment and the funds for closing costs (which include the broker’s fee if applicable) to the title company shortly before closing.
• Step 7: At closing, the borrower signs the loan documents to finalize their end of the transaction.
• Step 8: The wholesale lender funds the home loan.

Pros and cons of wholesale mortgage lending

If you’re considering wholesale mortgage lending, keep these pros and cons in mind to guide your decision:

Pros of wholesale mortgage lending

• Potentially less stringent eligibility guidelines
• Potentially more competitive rates and flexible loan terms
• Personalized support from a mortgage broker

Cons of wholesale mortgage lending

• No direct contact with the lender
• Mortgage broker fees (if applicable)
• Higher likelihood of loan sell-off following closing

The top wholesale mortgage lenders in 2023

Here are the 10 U.S. lenders doing the most wholesale mortgage business as of 2023. They are ranked by dollar volume of their wholesale mortgage operations (some of them also do retail).

Is wholesale mortgage lending right for you?

Getting a loan from a wholesale mortgage lender might be a good option if your credit history is less than stellar or unique, since a mortgage broker or other third party has a relationship with the lender and could get you approved under less strict requirements. Because they don’t have to spend a lot on advertising, loan officers and overhead, wholesale lenders might offer better terms and charge fewer or smaller closing costs.

However, since you’re not directly in touch with a wholesale lender, communication could be slower, and seem more mysterious. Most mortgage brokers work on commission but some also charge you a fee. Be sure to compare this cost to those of other lenders as you weigh your options.

Additional reporting by Mia Taylor