Unlocking The Wholesale Channel: Key Considerations For Mortgage Originators And Lenders

Mortgage News June 2, 2023

Entering the wholesale channel can be a significant decision for loan officers, retail lenders, and consumer-direct lenders. Before making the leap, it’s crucial to consider several factors, as highlighted by the STRATMOR Group in its May Insights Report. In the report, STRATMOR partner Jim Cameron presents an article titled “Thinking About Wholesale? Considerations for Mortgage Originators and Lenders,” equipping decision-making with valuable research, data, and analysis.

Cameron begins by posing essential questions that originators should ask themselves when contemplating a switch to the wholesale channel. One key consideration is the earnings potential. Originators need to evaluate whether they can make more money working with a retail lender or as a broker. To assist with this assessment, Cameron presents a proforma summary outlining the economics of each originator category.

Furthermore, Cameron sheds light on the wholesale market’s evolution, explaining that its market share of total origination peaked at 56% in 2006 and has since settled into the 16%-to-21% range since 2018. He emphasizes that the consolidation of market share among the top three players, accounting for over 50% of total wholesale volume, is a trend to watch closely.

Lenders exploring new revenue streams may find the concept of augmenting variable costs while minimizing fixed costs attractive. Cameron explains that lenders competing in the wholesale channel typically adopt one of three strategies: scale, niche, or relationship.

Scale wholesale lenders like UWM and Rocket dominate the market, providing better pricing and technology for agency loans. Niche wholesale lenders specialize in products requiring expertise, while relationship wholesale lenders focus on long-term partnerships with smaller banks and credit unions. This strategy complements existing retail lenders.

Cameron’s article also delves into the factors driving loan originators to adopt the broker wholesale model. He explains that originators working in consumer direct call centers who do not build their own book of business are less likely to make the transition, but other originators may find it more compelling.

Considering these crucial factors and understanding the dynamics of the wholesale channel will enable loan officers and lenders to make informed decisions about their future business strategies.

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