The nation's 'A' paper wholesalers had a decent year in 2004, table funding $728 billion in loans. Of course, that was a bit of a letdown from 2003 when wholesalers produced a record $1.05 trillion. Then again, chances are the industry won't see another year like 2003 for another five years.

But over in the subprime/nonconforming world, things were a bit different. Subprime wholesalers table funded a record $375 billion, an impressive 66% gain from the year before. Subprime correspondent funders bought a record number of loans as well — $109 billion, a 51% gain from 2003. As this book went to press it looked as though 2005 would be just as good (or very close) as 2004 — that is, if your firm is involved in table funding and purchasing subprime and nonconforming mortgages.

How is it that the nonconforming sector is still accelerating? Is it because Fannie Mae and Freddie Mac have taken it on the chin thanks to their accounting scandals and have been slow to adapt to new products? Is it because private sector lenders (and Wall Street) have been more inventive and willing to take on new, nonconforming products — especially products that allow consumers to compete aggressively for high cost homes by using low payment products? Or is it because the recession of a few years ago damaged the credit of so many consumers that there are more subprime borrowers out there? Chances are all three of these are answers, but there are likely other reasons as well — like low interest rates and housing being the only decent investment left in America.

Yes, the non-conforming sector is red hot right now and wholesalers and brokers are key players in the niche. As we've noted before the beauty of wholesaling is the ability to enter new and vibrant markets quickly and cheaply. Owning retail office space involves incurring "fixed" costs — as in rent, computers, utilities, and paying benefits to branch workers. Wholesaling is a different matter.

Once a company obtains a license to fund in a certain state, a wholesale account representative can work from a satellite office or even from his or her home. Once the loan products are created, established, and readied for the secondary market (and securitization) a wholesaler has to get its computer systems in order, including the ability to work with loan brokers over the Internet. The hard part (as we're often told) is finding good (super producer) brokers to work with. It all sounds easy but it's not.

So, what's the key to becoming a successful wholesale mortgage banker? Historically low interest rates help, but as any veteran manager can tell you the key to profitability is good people, good products, and good marketing. As competition intensifies in 2005 and 2006 hands-on account executives and skilled processors and underwriters will be essential. As this book went to press there was a growing concern in the industry about not only the notion of a "housing bubble" but mortgage fraud. In the spring of 2005 Federal Bureau of Investigation released a top ten ranking of mortgage fraud "hot spots." States on the list include California, Colorado, Florida, Georgia, Illinois, Michigan, Missouri, South Carolina, Nevada, and Utah.

The agency said the number of SARs (suspicious activity reports) filings increased by 147% in 2004 to 17,127 instances of suspected fraud. Currently, the FBI has 642 open cases of mortgage fraud compared to 436 the year before.

How to Use This Chapter

In the pages that follow we list the top wholesale lenders (both prime and subprime) and their loan menus. By scanning the "profiles" in this chapter you can see what type of loans wholesale funders are willing to originate and where. It should come as no surprise that many of the nation's "mega" wholesalers (Countrywide, Washington Mutual, Chase, Wells and GreenPoint) are willing to fund loans in almost all 50 states. Similarly, the nation's largest subprime wholesalers (New Century, Ameriquest/Argent) also are willing to fund just about anywhere.

But also keep in mind that the industry can no longer be divided into "prime only" and "subprime only." Yes, life has become more complicated. Countrywide and Wells are also top ranked subprime lenders and have a strong presence in other nonconforming niches. Similarly, nonconforming funders such as Argent and New Century are branching out into prime, "near prime," jumbo, alt-A and particularly interest-only loans. Moreover, new entrants are entering the business every day. What does all this mean? Answer: competition could get even fiercer.