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

[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?

[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.