Wholesale vs Correspondent lending? What is the difference and benefit?

Lender · Member since 2022 · 6k+ posts · 1k+ votes

The other day I lost a deal for a DSCR loan at 6.99%, no pre-payment penalty, and no points. I thought it was hard to believe they were closing on this kind of loan, but it was indeed true! I spoke with the lender and it appears the broker shop that was able to do this is currently signed-up as a Correspondent. I know this carries ALOT more responsibility than just being a broker , so I am curious to know what are the drawbacks to this style of business? Do lenders make money on the back-end of the deal? How are they priced so aggressively?

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Patrick Roberts

Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes

11mo

The pro to this is that the corr. lender can completely control their pricing and vary as they wish. The biggest downside is buyback risk. The lender needs the infrastructure and liquidity to manage buybacks or they can be wiped out. True correspondent will likely also need a warehouse line to fund and hold the loan until it can be sold.

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Patrick Roberts
Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes
11mo
The pro to this is that the corr. lender can completely control their pricing and vary as they wish. The biggest downside is buyback risk. The lender needs the infrastructure and liquidity to manage buybacks or they can be wiped out. True correspondent will likely also need a warehouse line to fund and hold the loan until it can be sold.
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- Erik EstradaBusiness Member
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  Lender · Member since 2022 · 6k+ posts · 1k+ votes
  11mo
  Quote from @Patrick Roberts:
  
  The pro to this is that the corr. lender can completely control their pricing and vary as they wish. The biggest downside is buyback risk. The lender needs the infrastructure and liquidity to manage buybacks or they can be wiped out. True correspondent will likely also need a warehouse line to fund and hold the loan until it can be sold.
  
  I see now. I don't think it's worth the risk LOL.
  [email protected]818-269-7983
  LuxePrivate Investments LLC 572 Reviews
  Website View Page
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- Patrick Roberts
  Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes
  11mo
  Quote from @Erik Estrada:
  
  Quote from @Patrick Roberts:
  
  The pro to this is that the corr. lender can completely control their pricing and vary as they wish. The biggest downside is buyback risk. The lender needs the infrastructure and liquidity to manage buybacks or they can be wiped out. True correspondent will likely also need a warehouse line to fund and hold the loan until it can be sold.
  
  I see now. I don't think it's worth the risk LOL.
  
  The biggest draw for larger brokers is the ability to hide comp behind the margin curtain on the rate sheet and change it by loan size, etc. Non-del Corr is really popular right now. Got to have the ability to handle buybacks, though. Probably not super valuable if the lender isnt trying to balance sheet some of the loans and isnt doing serious volume.
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Andrew Zamboroski
Lender · Member since 2021 · 495 posts · 130 votes
11mo
Quote from @Erik Estrada:

The other day I lost a deal for a DSCR loan at 6.99%, no pre-payment penalty, and no points. I thought it was hard to believe they were closing on this kind of loan, but it was indeed true! I spoke with the lender and it appears the broker shop that was able to do this is currently signed-up as a Correspondent. I know this carries ALOT more responsibility than just being a broker , so I am curious to know what are the drawbacks to this style of business? Do lenders make money on the back-end of the deal? How are they priced so aggressively?
I am curious who it was! I have seen some “super brokers” set up as correspondent or even on a lower rate sheet without the buyback risk. They usually have sharper pricing than any broker could get wholesale based on their volume. For example, maybe they are .125-.375% lower than what most brokers would be. This allows them to keep costs lower at the same rate (wrapping it in their margin with ysp) as their competition or offer a lower rate with similar costs to competition.
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