Understanding Where Your Mortgage Comes From When You Work With A Mortgage Broker

Posted on: 30 December 2018

Mortgage brokers are not like bankers. They do not have money of their own to lend. Instead, they get the mortgage money from other sources, and broker deals to get the funds. In order to understand where your mortgage comes from when you work with a mortgage broker, the following information is provided.

Wholesale Lending

​Wholesale lenders are the ones that back and underwrite your mortgage loans. They may be private investors, or they may just be non-traditional lenders. The "wholesale" part has to do with the fact that they try to give you the most reasonable mortgage rate based on your credit, and they are willing to give you a mortgage when banks and credit unions will not. The mortgage broker enters into partnerships with many wholesale lenders until the broker finds a lender that is a good fit for your needs.

The Wholesale Lender and Broker Partnership

​A mortgage broker looks for all kinds of lenders and lending programs to help people get a mortgage, even when their credit is not so good. As such, the broker enters into partnerships with wholesale lenders. The broker originates the loan, while the wholesale lender underwrites the terms of the mortgage and provides the funds. The wholesale lender also makes the determination to lend the money, although very few people are ever turned down by a wholesale lender. 

​When You Sign the Paperwork, You Pay Directly to the Wholesale Lender

​Once you have received the funds and have purchased your home, the broker's job is done. He/she is no longer part of the picture. Every month, you make a mortgage payment to the wholesale lender, and the broker no longer has any part on the transaction.

While this typically works out well for both the lender and the borrower, you should know that the wholesale lender can raise your interest at any time, and that he/she can sell your mortgage to another wholesale lender if he/she no longer wants to hold onto it. You may go through several cycles of lenders of this sort until you are able to refinance your home with a bank or credit union and place the home in your name. You should also know that wholesale lending operators can reside and operate in any other state, any other U.S. holdings, and any other country. Read the fine print on your contract before you sign so you know exactly where the lender is.