The Number of Wholesale Lenders Is Dwindling.

In the early 2000s, most of the mortgages approved in the United States were originated by mortgage brokers. In fact, various estimates put the mortgage brokers' market share at just over 60 percent. That means that almost two out of every three loans originally came from a mortgage broker. Wholesale lenders were everywhere because mortgage brokers had an established client base that the wholesale lenders didn't have and were bringing in the lion's share of home loan business. Every national and practically every regional bank had a wholesale division.

Then the "mortgage debacle" of 2007 hit and hit hard. Subprime and other "alternative" mortgage loans began having significant default rates. Homes were going into foreclosure at a record pace for several reasons, but the main reasons were that the borrowers, the loan officers, or both had committed some sort of loan fraud. Or perhaps the lender offered a loan program that didn't require any documentation of the loan file itself—so-called no-documentation loans.

Mortgage brokers marketed these loans heavily, closing more and more loans and putting people into homes that they obviously had no business being in. It wasn't just the loan officers' fault because it was a wholesale lender who offered the loan product in the first place.

As people began to default on their mortgages, subprime and alternative lending came to a screeching halt. Wholesale lenders who relied on mortgage brokers went out of business almost overnight. Loan officers who relied on subprime and no-documentation loans also got out of the business because they no longer had a place to send their loans to.

Banks saw that loans originated by mortgage brokers had higher default rates, so many of them simply shut down their wholesale divisions completely. Many national banks that used brokers started relying on their internal staff to market their mortgage loans instead.

The market share shifted from mortgage brokers back to mortgage bankers. Fewer wholesale lenders also means fewer mortgage brokers.

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