Posted by Craig on March 03, 1999 at 10:28:43:
Wholesale lenders are the big boys the same lenders that traditional mortgage brokers use to fund deals. They have wholesale rates(low or no points, par pricing). When a client goes to a mortgage broker to get a loan for them the mortgage broker gets a fee to secure a loan for that client. It’s usually around 5% of the loan. So Mr. Mortgage broker goes to ABC Lender who can loan 90% Loan to Value of a $100,000 home to the client. At the closing $85,500 will go to the borrower which then goes to the seller of the home. $4,500 will go to the mortgage broker(his fee for securing the loan). So the home buyer needs to come up with $15,000 more to close on the home. This is the traditional way.
When a seller direct origination(simultaneous closing) is done on the same home, the note broker goes to the same wholesale lender who will fund 90% LTV. The note broker has the “home seller” finance it in their own name. Then offers 95%($85,500). The note broker buys it and simultaneously sells it to the wholesale lender for par value($90,000). The home buyers now only have to come up with $10,000 dollars more to close the deal because the home seller absorbed the 5% broker fee. Doing it this way is really nothing more than a homeseller telling a buyer he will absorb or pay the mortgage brokers fee out of the price of his home. In my state after a home seller closes on his home and finances it himself it’s a done deal. If he wants to sell the note for a discount that’s his business even if he did it with the intention of selling the note. It’s a great deal for the home buyer, unless the seller raises the cost of his home to make up for the discount he will take on the note. In which case he may or may not find himself the victim of a lawsuit. Also since he is selling to a lender he should be complying with RESPA guidelines such as disclosure of transfer of servicing. The trouble with deals like this come when note brokers do them and then sell the note for more than it’s face value which really means they raised the interest rate for a yield spread premium. This has to be disclosed to be safe. I would never even attempt to do that. Just find a lender that will buy for par. Buy it from the seller for less and it’s a good deal for all involved. Instead of the buyer’s paying 5% more for a home because of a mortgage brokers fee, the seller gets 5% less because of a note brokers fee. This is how the big boys that say they can pay 95% for your note are doing it.