Who Are Mortgage Lenders Wholesale?

The current financial crisis has caused people to question before they sign a mortgage document. Many lenders have lost considerable amounts of money recently, some have even closed. If you are in the process of getting a home loan, or even if you already do have a loan, it pays to know about the mortgage industry and how it functions. This could affect the way you chose to borrow money. There are several ways to borrow money. Many people will just go to their local bank, the one with the well known name that they have had a savings account since with since they were twelve. For a long time this was the only way to get a loan. Some of us even have memories of inviting the bank manager over for dinner in an attempt to get a loan, these days most people wouldn't recognise their bank manager if they passed them on the street.

Wholesale Lenders Changed the Mortgage Market

The introduction of mortgage lenders wholesale has revolutionised the loan markets. A wholesale lender is often, but not always, a major bank or financial body. The large bank has a fair bit of weight in the industry and is able to borrow large amounts of money at a low interest rate. The bank then sells this money on to smaller, private lenders, known as second tier lenders, at a higher mortgage interest rate. These smaller lenders then lend the money to the people on the street as mortgages. Mortgage lenders wholesale has made money more accessible and the mortgage market more competitive. Mortgage interest rates just seem to keep dropping as the banks compete with each other for you business. Well, at least they seemed to until the recession hit.

The Downfall of Second Tier Lending

A majority of mortgagee auctions over the last twelve months were homes which were mortgaged by second tier lenders. Many people have been pointing the finger at mortgage lenders wholesale for giving away money too easily and inflating property prices. As a result people are losing their homes, or finding out they are worth half of what they paid. Also hurting, are those with a home equity mortgage. Hard working people who spend years paying off their loans, only to borrow against their property for a holiday or new car, have had their lenders bail and their loans called in. Many second tier lenders offer home equity mortgage as a speciality. While wholesale mortgage lenders can not be singled out as the cause of the recession, they do have a lot to answer for. Second tier lenders are notorious for seeking out first home buyers or inexperienced lenders. They have had in the past a very lose lending policy, often giving out money to people who couldn't afford to pay it back. This isn't a big deal to banks in times of growth; while repossession is not favourable, when prices are on the rise they will often profit in doing so. Now that real estate prices are falling, things have gotten much tougher. Banks are losing money as fast as their customers are.

Often people with bad credit turn to second tier lenders in an attempt to get finance approval. After being rejected by one of the big banks, they will seek out options with an alternative lender. Second tier lenders love this. As they borrow their money from the big banks, they cannot always stay competitive. Mortgage interest rates will often be slightly higher than with a major bank, although small lenders will try and stay competitive by offering lower fees. A good deal of their business comes from picking up customers that have been rejected by the big banks. Second Tier lenders may become a thing of the past. With mortgage wholesale lenders such as Fannie May and Freddie Mac going bust, there seems to be less and less money going around. Banks are tightening up their lending criteria in the face of impeding recession. If you don't already have a mortgage it is certainly going to be tougher for the next few years. This is not necessarily a bad thing, signing up for a mortgage you can't afford is definitely a bad idea. The downfall of the second tier lending market may actually save a lot of people stress, money and heartache. Of course, its up to you too look after your own interests when you are applying for a mortgage. Make sure you can afford the home you are buying. Work out your repayments and a budget that is centred on them. Don't forget to leave some money aside for a rainy day. Be aware of what you are signing up for and read all of the small print.

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