Mortgage Refinance Guide

You may have heard in the news that Bank of America recently acquired Countrywide, the largest mortgage lender in the United States. Given the fact that Countrywide was on the verge of collapse and being investigated for predatory lending practices that caused a financial nightmare for countless American homeowners, this buyout by Bank of America could only be a good thing right? While Bank of America has a good reputation as a Bank, the fact that they are a bank is not a good thing for homeowners. Here are several things you need to know about bank originated mortgage loans to avoid paying too much for your next home loan.

Countrywide Mortgage Fiasco

The mortgage meltdown of 2007 happened largely because of the irresponsible lending practices of Countrywide Mortgage. Countrywide was so focused on their profits and closing loans regardless of whether or not the borrower had the ability to repay that many people dug themselves into holes they could not get out of and lost their homes. Since Bank of America has taken over the company I suspect they will return to responsible lending practices…as much as bank is willing to be responsible that is.

The Real Estate Settlement Procedures Act (RESPA)

You may have heard of RESPA legislation before; however, this is not something your banker is going to discuss with you. RESPA laws protect homeowners from predatory mortgage lending by requiring most lenders to disclose their profit margins. This law has undergone a number of changes over the years, most notably was the Banking Lobby spending millions of dollars to have the law amended to require mortgage brokers to disclose their markup on the Good Faith Estimate and HUD-1 Statement. Sound like a good idea right? One small problem…the banking lobby had themselves excluded from this disclosure. That’s right, while mortgage brokers are required by law to disclose their commission based markup of your mortgage interest rate (called Yield Spread Premium) your bank is not. What does this mean for homeowners? Basically anyone that takes out a mortgage from their bank will pay too much for that loan.

Service Release Premium

Many homeowners are under the impression that once they take out a mortgage the lender sits back collecting their monthly payments and makes money from the interest. This simply isn’t true. The microsecond that your mortgage closes the bank or lender pools your loan with other mortgages and the debt is insured and sold to investors on the secondary mortgage market. This is where mortgage lenders and banks make the majority of their profits. Home loans with above market interest rates bring in the largest profits when sold to investors. This is why mortgage brokers are rewarded with Yield Spread Premium (a commission for overcharging) and why banks build Service Release Premium into their rate sheets without disclosing their markup.

Why should the bank disclose this markup? After all, the only thing they are required by law to disclose is the Annual Percentage Rate (APR). Truth in Lending laws require banks to disclose the APR but the law does not tell them how they have to calculate this percentage or even what fees they have to include in the calculation. This is why APR is all but meaningless when comparison shopping for a mortgage.

So how does this Service Release Premium work? Your bank follows the mortgage industry very closely…they know exactly what wholesale mortgage rates are and how much profit loans are bringing when sold on the secondary market. The bank marks up mortgage rates to boost their profits when the mortgage is sold. This profit based markup of bank mortgage rates is called Service Release Premium. Because banks are not required to disclose their profit margins under RESPA, if you don’t compare wholesale rates from those offered by the bank you’ll never know the difference.

Most bank employees know very little about mortgage rates and will show the current rate sheet for the day swearing that they are not marking up your mortgage rate. The problem is that bank rate sheets have service release premium built in them. If you want the absolute lowest mortgage rate possible you must find a mortgage broker willing to give you access to wholesale rates; you’ll never get this from Bank of America.

Countrywide Home Loans and Bank of America

Hopefully the buyout of Countrywide Mortgage by Bank of America will put a stop to the predatory lending practices they have become known for; however, you can bet Bank of America will restructure the mortgage lender to take full advantage of the loopholes in the Real Estate Settlement Procedures Act enjoyed by banks today. Want to save money on your mortgage loan with a low rate and no garbage fees? Stay away from banks…and stay away from Countrywide home loans.

You can learn more about refinancing your home loan with a wholesale mortgage rate while avoiding garbage fees with a free video tutorial. Register today while this is still a free offer…these videos will teach you everything you need to make an informed decision as to which home loan is right for you.