Understanding the Lending Business

Understanding the Lending Business

Why an Independent Wholesale Mortgage Broker?

A lack of transparency can make understanding the loan business impossible. So I’ll provide a simple explanation as to why you may get a better deal from a broker than by going directly to the underwriting source or bank.

When you call a major bank who also has wholesale broker cooperation, you will talk with an In House Sales Person. They are employed by, housed by, insured by, educated by, and supported by the bank. All of that costs a lot. Independent brokers bring fully processed loan packages to the bank, with NO overhead, like all those internal expenses related to their employees.  To compensate for this, the bank will  pay the outside broker a fee for bringing in the loan.

Generally, all loans are sold on the secondary market to huge investors like Fannie Mae etc. When the loan is sold, some of the future earnings are shared back with the bank and broker. They call this a Yield Spread Premium, or YSP. Many lenders do not disclose this to the borrower and don’t have to. Many borrowers believe that Mortgage Originators make it on a 1% origination fee. NOT SO. I have seen a YSP as high as 9%!!!

Some brokers will share their part of the YSP with the borrowers by buying down the rate or paying fees related to the loan. If one broker offers a better interest rate or lower fees, it is most likely because that broker is not making as much money as the others. They are sharing part of that YSP with the borrower.

I think that the abundance of regulations keep brokers honest but those regulations have nothing to do with how much they want to make.  So….It  pays to shop around. First, shop for a broker you like who will then shop for a good wholesale source for your loan.

Two places to save money are 1) the Broker 2) the choice of Wholesale Underwriter.

In the next blog we will discus rates and fees as well as how to save, as much as 1/2% by shopping around.

Let me help you connect with the best place for a loan, email me directly!

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