Wholesale lenders offer the mortgage broker wholesale rates in return for the mortgage broker performing the expensive and time consuming function of originating the loan. The mortgage broker pre-qualifies the borrower, verifies the credit, income, and property aspects of the loan, and then presents the loan to the lender. Other lenders maintain staff and facilities to perform these functions and must include these costs in their rates.
Another reason brokers can offer discounted rates is that the lenders are buying mortgages that they may not have had access to previously. The reality is that you are not about to make an application at every lending institution! Your own banker is typically not authorized to offer you the discounts that are available.
If you consider the time-consuming effort of shopping numerous lenders and having to contact them on a daily basis for rate updates, it is easy to see why mortgage brokers are the number one choice of informed borrowers today.