KCO Tax - How Can You Get A Mortgage Loan At A Wholesale Price?

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By Igor Krishtul, ChFC, EA

Recently, I’ve discovered that there are many advertisements, books and “secret reports” telling you how to get a mortgage loan at wholesale. They frequently pop-up in my e-mail. Some of my clients, acquaintances and total strangers demand my help. “I want my mortgage – at wholesale prices!”

If you are foolish enough to waste your time and money in this area, this is not the worst thing that can happen to you. Some folks end up doing business with such advertisers and promoters. At the end they learn the hard way. Many are baited into “wholesale” deals only to discover their mortgage loans are highly overpriced.

But, I really know a way you can get your loan at wholesale. Do you have a daddy who owns a wholesale lending company? If so, you are all set. Provided, of course, you have a good relationship with your papa. Hey, he can even give you the money at below the wholesale rates.

If you are like most borrowers, however, your mortgage is priced at retail. You can, of course, find discounts and specials. Just like in many other businesses. But, you are a retail consumer and will pay a retail price for your mortgage products.

Sometimes, the retail storeowners are willing to get rid of their inventory at any price. You can even get it below cost. In the mortgage business, though, the “inventory” does not really exist or require maintenance. So, there is no need to get rid of it an any cost.

The mortgage companies you deal with must make a profit. Otherwise, they will become insolvent. This profit must be sufficient enough to pay all ordinary and necessary business expenses. Some of these expenses are rent, telephone, salaries, commissions, supplies and taxes, among others.

After all expenses are paid, there must be something left to take home. Small business owners take it in form of salary or draws to feed their kids. Larger mortgage companies take it in form of dividends to satisfy shareholders.

To make the story short, a mortgage company must add at least some mark-up to their wholesale cost. Otherwise, it is impossible to generate any profit. Once this mark-up is added, it is no longer a retail pricing.

Many mortgage companies are fairly small. Smaller companies usually have a lower overhead. Accordingly, they can be more flexible in discounting mortgage deals with customers. Yet, you still get your loan above the wholesale pricing, regardless of how generous such discounts may be.

Some companies licensed as mortgage bankers claim that by dealing with them you avoid the middlemen. It implies you avoid paying the broker’s fees. This is so untrue. Technically, the bankers give you money in their name. But, this money comes from wholesale sources. To generate profits, this money must be re-sold at a profit. The borrowers must pay a mark-up to make it possible.

Many deals you do with mortgage bankers are actually brokered. It means that these guys structure their deals with you the same way mortgage brokers do. Some bankers deal with more lenders than brokers do.

Mortgage companies are classified in different ways for licensing purposes, e.g. a “licensed banker/lender” or “licensed broker”. As a consumer, you should worry about specific products and pricing these companies can offer to you. A state banking department’s classification doesn’t give you a better deal.

When you deal with large companies, they have less room for discounting their prices. Huge advertising budgets, executive benefits and perks and other expenses require lots of cash just to keep afloat. To generate this cash, they often can’t afford significant discounts.

Wholesale lenders are frequently not even suited to deal with retail consumers. That’s why they are called wholesalers. If you contact them directly, they simply won’t do business with you. At best, then can refer you to other companies they do business with.

Some large lenders sell mortgages to both the mortgage companies and general public. But, they have separate divisions, i.e. retail and wholesale. Their retail divisions are expected to generate profits. Hence, their pricing is retail. By dealing with “direct” lenders you won’t get your mortgage loans at wholesale.

So, think twice before commencing your search for the wholesale pricing. Instead, concentrate on what’s really relevant. Discover if you qualify for the mortgage loan in the first place. If you do, concentrate on the three major components involved. These are: the interest rate, points and settlement costs. Review the terms of your contract. Last, but not least, consider what value added services your mortgage guy or gal can provide to you.

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