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Wholesale Side of Mortgage, What Banks Don’t Want You To Know

I discussed a few months ago the wholesale side of the mortgage business. For you to understand the vision of the Mortgage by Miamibeach411 enterprise, it is important that you understand the difference why we offer you wholesale and don’t bother with retail.

Let’s visit this arena again to make some clear distinctions which are frequently overlooked by prospective borrowers thus making them “retail” clients instead of what they truly deserve: wholesale opportunities.

Wholesale is received when wholesale is offered. If wholesale is not offered, clients are left with retail offerings.

Please never forget this about institutional lenders: In mortgage transactions…BANKS OFFER RETAIL. BANKS MAKE NO WHOLESALE OFFERINGS TO INDIVIDUAL CUSTOMERS.

This means when you walk into Wells Fargo, Countrywide, Washington Mutual, or National City, the pitch will be…“You’re doing business directly with the lender”.  You’ll see in a moment (below), why doing business with a big institutional lender costs you money instead of saving you money.
 
The reason brokers have the ability to offer wholesale, is that institutional lenders (banks) provide wholesale rates to BROKERS and only BROKERS. 

The trick is, how to get the broker (me) to give the borrower (you) the best and lowest cost mortgage… I have the answer… let me share it with you: it’s all about relationship and trust.  Remember the old addage: “you be nice to me; i’ll be nice to you”.
 
How our company is different

Firstly, we already have associations with major lenders such as:

These lenders provide us with wholesale rate sheets daily.

What that means is, if you go into a local office of say National City or Countrywide or a branch at Washington Mutual, their quote will be from a retail rate sheet.  (Normally a minimum of 1% higher and in some cases 2% higher than our wholesale rate).

Why doing business with a big institutional lender costs you money

The reason that their direct rate is higher than a brokerage rate is they must recover the cost of huge executive salaries, 401K matching, free health care benefits to unmarried employees, advertising and other high costs of day to day business operations. 

With a wholesale broker like MiamiBeach411, the borrower does not have to offset any of these expensive instruments which the banks, savings and loans, and credit unions pay (they really don’t pay, the cost is passed on to the borrower).

Brokers can beat banks hands down.  I know it, banks know it, and now you know it too.

By Jim Jump To Comments
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21 Responses to "Wholesale Side of Mortgage, What Banks Don’t Want You To Know"

    theXbroker says:

    We are with you MB411…

    Reply

    Posted on 05/14 at 2:32 PM
    Brian Paternostro says:

    This is not entirely true, brokers can give you wholesale rates along with a wholesale bank like ourselves, Nationwide Home Loans, a Florida based bank offering wholesale rates WITH OUT yield spread paid by the big lenders to brokers doing the loan. Thus lower fees and speedier service with a wholesale direct lender than a mortgage broker.

    Reply

    Posted on 04/10 at 4:51 PM
James Moore says:

Brian, nice try but come on…you know you’re getting yield spread premium.

Don’t try to fool the general public; they’re way too smart for guys like you.

Brian gets a yield but being an instutionalized lender, he doesn’t have to disclose it on the settlement statement.

Thanks for your comment Brian; however lets keep it straightup from now on.

Reply

Posted on 04/10 at 7:00 PM
Brian Paternostro says:

That is 100% true.  How do we get paid yield spread if we lend out our own money?  You make your payments each month to Nationwide, not to who offers the best YSP paid to the broker. I am not saying that a broker is in anyway better or worse than other forms of lending, but it is untrue to say that the only wholesale rates are thru brokers.  If the public wants TRULY unbiased information on mortgages, go to http://www.zillow.com/wiki/RealEstateWiki.htm and read up on the pros and cons of each form of lending written from the general public at large and not from those inside the industry.  There is a need for all forms of lending, retail, wholesale, and broker.  Each one plays a vital role in providing a service for each type of niche client.  Read up, compare, price and decide!!

Reply

Posted on 04/10 at 8:13 PM
Jim says:

Brian, to answer your question:  “who gets paid yield spread if we lend out our own money”?

Answer:  YOU DO!!  but in order for you to get paid you have to offer your proposal at a higher than wholesale rate.

I appreciate your comments about everyone having their own place and you suggesting potential borrowers getting advice from other borrowers; however, there’s nothing like a relationship.

It’s never the “program”, it’s the person administering it.

Policy and program are never more important than the employee and the customer.  Once the “policy” takes precedence over the client, you have yourself an…...evil enterprise.

Reply

Posted on 04/10 at 8:25 PM
Jim says:

Brian, I went to your company “website”...(excuse me but you call that a ...home page).

Firstly your companys goal:  ” Our goal is to provide home loans to our clients while providing them with the lowest interest rates and closing costs possible” 

Gimme a break, you know you guys high-five for big fees, and your managers push you to make “back end” points.

I wouldn’t put myself with a company that has the gall to try and sell that particular “bill of goods”.  This is 2007 not 1957…people aren’t so gullible as to swallow that line.

You’re probably a nice young man, and you probably enjoy helping your clients but lets keep it real and provide exceptional service a fair price (preferrably wholesale).

By the way have you guys considered passing the hat around the office and at least spending a hundred bucks for a semi-professional home page?

Reply

Posted on 04/10 at 8:45 PM
Brian says:

Hi Jim,
It is kind of hard to charge “back end fees” when there are none! What we need to do is pass the hat to buy you a mortgage for dummies book that clearly shows banks do not make yield spread on their own loans.  We take 100% of the risk for each client and thus determine programs to best suit their needs, not shop each loan to each bank on your list.  Fees remain the same for everyone.  This is common sense.  Now that you decided to attack my company personally, you would have to think the public would not for a second believe that this whole article (which I think only you and I read) is nothing but a infomercial loosely disguised as a article.  What caused me to write back today was that I had to snipe another loan from some other piker mortgage broker that was lying to them as usual (not saying that you do), but lets both you and spread the word and have EVERYONE in the industry quit telling the clients that we can be everything to everyone and be realistic about our quotes.  (560 score for 100% financing purchase, don’t think so).  Lets treat our clients as family!

Reply

Posted on 04/17 at 2:25 PM
Jim says:

560 Score 100% Purchase ok with VA or FHA with gifted 3% down payment.

Does the Government send your company subsidy checks since you don’t make any money upfront and loan it at the same price you pay for it?
How’s that new website coming?

Reply

Posted on 04/17 at 2:33 PM
Brian says:

I’ll send them to you as I wont take that risk (no gift).  Junk like this is why the sub prime faulted with no controls.
Go book some loans and quit worrying about your infomercial where you receive all your leads from.  I’m way too busy to mess with this.

Reply

Posted on 04/17 at 2:45 PM
Jack Leahy says:

Jim Nice talking to you. Brokers give the best loan packages period. Thier livelihood depends on the loan funding.
Brian or the banks are direct lenders and as u or i know that means nothing.
Check out the mtgprofessor.com
Sorry about my phone Jack Leahy Boston

Reply

Posted on 05/16 at 8:27 PM
James Moore says:

Thanks Jack, it’s inspiring that persons like yourself take an delight in passing on good will.  I am glad you enjoyed the banter between Brian and myself.

Reply

Posted on 05/16 at 8:38 PM
Kristi says:

I read the discussion between Jim and Brian and wanted to share some my thoughts.  I started out in this business being a broker then went on to the retail side with two major banks being very successful, becoming the 4th top producer in the state of florida within only 1 1/2 into the industry.  There are good brokers and mortgage bankers and there are bad ones. It is all about what you believe you are in the business to do, your core values.  There are brokers who have ruined the reputation about brokers that have charged clients 3,4,5 points and there are brokers who understand a client and their needs and do not take advantage of a client.  In the retail side, fees and charges are set at a maximum and can not charge more than normally 1% in orgination.  That is where I can see an opportunity in the business and becoming a great broker.  Using the experiences of both sides and applying that to build your own business, in which I am starting to do. I have moved back into the wholesale side because of this opportunity that I see.  Most A paper clients would probably go directly to a bank to get a mortgage rather than a broker, then will turn to the broker in most cases if the loan doesn’t go thru.  Banks in recent years have been very aggressive in the mortgage division are rather very competitive with rates and programs. Why not have a brokerage firm where you can provide the same quality of services and values as the bank to maintain the quality of our clients and still offer the client a better deal in the rate.  The bottom line is the relationship that you have with your client, your honesty, your professionalism, your knowledge, and heart in understanding your clients will determine how far your success will take you.  There are good brokers out there, we just need know who they are.  These brokers will carry their business far beyond.  There are good mortgage bankers out there, again we need to know who they are as well. 

Kristi.

Reply

Posted on 06/13 at 1:44 PM
David says:

Depending on your credit score this may be entirely true. I tried to get a home loan with my credit union, whom I have been a member of devotedly since 1985. They give me excellent vehicle loans, but the home loan offer, to put it bluntly SUCKED! I took my business to Countrywide and got a 30 year loan (VA Backed) that was 1.75% lower than ANY other rate out there (5.15% in my case). By the Way this is my 2nd mortage, and 1st with Countrywide and it was NO money down, no fee, and very minimual (less than $600) closing costs, all on a $180K loan. I also bought this home WITHOUT the aid of a real estate agent.  My credit score of 800 had alot to do with it.

Reply

Posted on 06/28 at 11:25 AM
Business Loans says:

As always, your analysis is thoughtful and raises important questions. I totally agree with you that, a wholesale broker is the best solution in mortgage transactions. I’m confident that I’ll learn a lot of things, so I look forward to more articles.

Reply

Posted on 06/29 at 4:48 AM
donovan says:

brian, are you trying to say you do loans for free? or at least no cost at wholesale par? sweet! allright! (psh).

no such thing! no cost loan? higher rate. i mean, who can and would do a loan for free? youre making your money. your bank/lender/broker is making money. everybody is making money. if they didnt, they wouldnt be in this rollercoaster industry. backend or frontend.

this is why ive stuck with the operations side of mortgage lending. (and yes, i do have my real estate license. and yes i have a notary license. and yes, i have a 4 year college degree). but you know why i avoid sales of loans? because of this type of misinformation. i see LOs all over the place adhere to one rule: dont ask, dont tell. if the borrowers dont ask, they LOs will surely not tell them. and thats what sucks. i do loans, but at cost for me and my borrower. and i only do them for friends and family because im sick and tired of the LOs taking advantage of borrowers.

jim, i agree w/ your article. i also believe it is an honest way to attract potential clients. at least its upfront.  but for brian to say no back end fees, or low/no closing costs, wholesale rates, etc etc is BS. c’mon. nothing is free in this world. nothing.

subprime market failure was due to a combination of 3 things: banks even fathoming to create these types of loan programs, loan officers for friggin’ even offering them to people who they KNOW cannot follow through especially with payment shocks (the los think short term, not long), and the borrowers for not reading their loan docs! i make loan docs all day. and yes, while there is a bunch of jargon, there is always a “disclosure” of the type of program they selected which even a 6th grader could understand.

in the end, quit selling bad loans just to make a buck. dont say you offer wholesale rates when in fact you cannot!!! (banks can offer wholesale to brokers to make money. but brokers cannot do the same to consumers, unless of course, its a free loan. which does not exist.)

Reply

Posted on 08/05 at 2:46 PM
B.D. Lawson says:

WOW…..crazy talk!  James Moore is correct 100%.  He may not be getting the exact point across so all understand, but he is correct.  Brian (of Nationwide) is 100% correct >>  as far as he knows.  And Kristi with 1.5 yrs in the biz is completely wrong.

ONE…“score” has absolutey ZERO to do with interest rate on any, YES ANY, Fannie Mae or Freddie Mac or VA or FHA loan. That 620 rumor was started by some moron that believed some other moron that heard it from some other moron.  I AM the “broker”.  I AM the “license holder”.  I “own” the company.  I have received A paper approvals with a score as low as 531!  >>>  Score has ZERO to do with these types of loans.  Sorry David (with the 800 score).  Also David I don’t believe for one iota that you got 5.15% on a VA without paying points up the ying-yang to buydown the rate.  (that’s a whole nother bad idea issue)  I mean somewhere in the 5% in points range.  OR….you point the house and got the loan in 1962.

BUT….Brian (560 comment) would make you believe because he believes (because that is what he was told) that a 560 doesn’t qualify for anything better.  NOW…“Banks” do NOT have Yield Spread Premium (YSP).  It is NOT on the HUD and the loan officer (Brian) believes it to be non-existant.  Now if Brian were sat down in the deep depths of accounting….he would see that the accounting department would be calculating YSP on the retail basis and sticking it in Nationwide’s books.  Brian is ripping off his clients AND Brian is getting ripped off by his own beloved (treated like family) employer becuase Brian is not getting PAID on that “hidden” little extra.  The bank keeps it all.  Brian (and ALL banks employees) get paid ONLY by charging “points”.  This is where Kristi is a moron becasue it isn’t “max’d due to fico score”.  It is max’d do to Federal Law!  Federal Law states the max “fees” a loan can be charged is (mathmatically) 7.99% of the total loan amount.  This is NOT “the rate”.  This is how much, in a percentage of the loan amount, a bank (or broker) can charge.  Now IF you charge more than the 7.99%.,...you still can…but it is then called “Section 32” and more disclosures need to be reviewed and signed by the borrwer.

In conclusion…..a BROKER can beat ANY “banks” rates by at least 0.500% if not more.  The fees may (and typically are) EXACTLY the same.  Appraisal;, Title, U/W, Processing.

My company has a $5,000 Rate and APR gurantee that I can (and we do) beat any single broker, banker, lender or whomever on any deal we close.  10 years….no takers.

>>>  And Donovan….We (brokers) can sucessfully do a No Cost Loan.  That happens to be my company’s best seller.  We “match” the rate of Countrywide or BofA (or anyone) and we then get paid TOO MUCH YSP from the Bank on a WHOLESALE basis. >>> Sometimes by the same exact bank that we are competing against<<< We then turn around and give that credit to the borrower and pay ALL of their closing costs.  Now the borrower just saved (a minimum) of about $2,200, got the same rate as “their bank” offered and we walk away (as profit) with about 1 - 1.5% of the loan amount as retained YSP.  Funny thing is that the retail banks CAN’T give a credit to cover ALL costs (I mean ALL) unless they had YSP.  So if banks don’t have YSP (hidden YSP)....how do they get money (credit) back a credit to the borrower????  Hmmmmmmm?

WINNERS ALL AROUND.

Can you tell I am sick of the business and I hate having to explain the simple ins and outs to every Tom Dick and Brian?

Reply

Posted on 10/30 at 12:46 PM
Steve Serfozo says:

This loan bussiness is so messed up it is maybe different in florida becose the much lower prices but on the north east this banks here WANT TO SEE MONEY CREDIT SCORE 700 n up n a single individual wont be able to buy ANYTHING NOTHING becose these banks want double garantee husband n wife or broders or two frends but a single guy wont get anything approved here I had a situation when I was paying a $1000.00 rent the place I wanted to buy was $250.000 with a montly income a $1200.00 from the house everything was perfectly legal the rent what the owner collected whn I was gonna move in I would move in to the house the section he occupied what was 1 bedroom bathroom and leaving room So I wouldunt have to pay my $1000.00 rent anymoore plus I could collect $1200.00 rent n I would have to carry a $250.000 morgage I explaned to the broker at the people banks then he said I steel need a 25% dawn payment plus a credit score abaut 700 plus a cosigner in case I get sick or samething This was 4 years ago if I could get in to that house that house is cost now $650.000 I would have $400.000 equality on my house this “harvard kids” over here fallow the letter unless sameone is cusin or samething IT IS SUCKS BIG TIME thats my opinion Steffi Stamford CT

Reply

Posted on 05/11 at 9:56 PM
JERRY SCHWEGMAN says:

BOTTOM LINE - IF YOU HAVE GOOD OR EXCELLENT ALWAYS GO TO A BANK FOR A LOAN NEVER A BROKER. THEY WILL ALWAYS SCREW YOU EVEN BRIAN!!!!!!!!!!

Reply

Posted on 03/26 at 11:06 AM
Brian Brokerino says:

I admit I have screwed some Clients as a broker…

Reply

Posted on 04/18 at 12:45 AM
Adam says:

You can get a better deal from a broker than a bank, period. 

Trust, funny to throw such an emotional based term into a business transaction.  If trust is all it took for good business, then there would be no reason for contract law.  With a broker, you can trust them to make the most money they can in any given situation.

They save you money and they can make a sizable profit off of you, without you knowing, in the process.  They are not obligated to tell you what the Yield Spread Premium (YSP) or Service Reserve Premium (SRP) that they are getting from the lender and/or FHA on the backside, for selling the loan.

With Mortgage Wholesale Rate Sheets that contain the YSP, SRP and the interest rates are restricted from the consumer public, it allows brokers to make all the shots, while the consumer doesn’t even know shots are being taken.  Most brokers make the standard 1% Origination Fee and up to 2% between the YSP and SRP. 

Ahhh, capitalism at it’s finest.

Reply

Posted on 10/21 at 9:16 PM
James Moore says:

You just made my point.
YSP must be disclosed by a broker.
Banks do not have to disclose YSP.

For those who don’t know, “YSP” or “Yield Spread Premium” is the differece between what the lender pays for the funds loaned and what he charges for the funds loaned.  Example:  Lender pays
6% and charges borrower 6.5% there will be a .5% YSP paid to lender.  (For every
$100,000 loaned the broker/bank receives an additional $500 profit on the transaction).

So, my point was this all along and you just made it for me (again thank you).
I like to know where all my money is going when I’m the borrower.

Banks aren’t obligated to tell you (and they don’t).
Brokers have the obligation to inform you on the HUD-1 Statement and they must.

**South Florida has a reputation for some of the most unscrupulous loan officers and brokers in the nation**

Reply

Posted on 10/22 at 5:27 AM

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