Mortgage Refinancing - Avoid The Traps, Get Expert Advice » Bank Mortgage

The Ugly Truth About Bank Mortgage Rates

Robert — Sun, 16 Aug 2009 03:31:33 +0000

If you’re in the market for a new mortgage loan or are thinking about refinancing your existing home loan, you might be considering taking out the mortgage loan from your bank. While it’s true that bank mortgages are a convenient way of taking out a home loan, if you want the best mortgage rates and lowest mortgage payment there is a very compelling reason for avoiding banks. Here are my best mortgage tips to help you avoid paying too much for your next home mortgage loan.

Best Mortgage Rates

Shopping for a mortgage loan is a confusing process for many homeowners. Most people just compare mortgage rates from their bank with a couple mortgage companies out of the phone book thinking that the biggest banks and lenders offer better deals. This might be true for products from the Wal-Marts of the world, when it comes to mortgage loans this mindset will cause you to overpay thousands of dollars.

Mortgage rates, especially those from your bank do not work like other retail purchases you make, buying a plasma television for example. You would think Bank of America, Wachovia Bank, and Wells Fargo Mortgage would offer discount mortgage rates because they are high volume lenders; however, this is simply not the case.

Home mortgage rates, it doesn’t matter if they’re from a wholesale lender or any bank, are not like other consumer products. There is no volume discount when it comes to home loans so it makes no difference if you take out a home loan from a mortgage giant like Wells Fargo Mortgage or the mom and pop mortgage company in a small town. This doesn’t mean that both types of lenders, large corporate giants and small time mortgage brokers alike, don’t have overhead costs that include marketing, office spaces, and the occasional company hummer. (Trust me on this point…you do not want to work with any mortgage company or broker you see tooling around in a hummer with their face and logo splattered all over it.)

Mortgage Rates Are Investment Driven

The mortgage markets do not behave like other retail markets when it comes to supply and demand. When demand is low mortgage rates typically go up…unlike supply and demand of physical products. This is because mortgage rates typically follow the yield, which is return on investment, in the bond markets. When the bond yields are low, which usually corresponds to bad economic news like the current recession, mortgage rates go down. When the bond yields are high mortgage rates go up because the demand of investors affects long term interest rates like what you pay on a 30 year fixed rate mortgage. It’s next to impossible to try and time the market when it comes to mortgage rates. Your energies are best spent shopping for the right person to arrange your next home loan rather than trying to predict when mortgage rates are going up or down.

What You Need to Know About Bank Mortgage Rates

Banks are not wholesale lenders nor do they offer their customers wholesale mortgage rates. Bank mortgage rates are set by the bank and if you’re willing to pay for a bank mortgage loan you’re welcome to take their rate or leave it…no negotiating. You would think that your bank has to be competitive with wholesale lenders in order to remain competitive in the marketplace; however, that’s not how banks operate when it comes to mortgage loans. Banks rely on the fact that most homeowners don’t understand how mortgage rates work to drive their profits, taking advantage of most people’s lack of knowledge. Most people fall victim to the notion that bigger is better when it comes to mortgage loans, a notion that results in overpaying thousands of dollars more often than not.

One of the biggest problems with bank originated mortgage loans is that your bank is exempt from the Real Estate Settlement Procedures Act and is not required to disclose any of their profit margin or markup on your loan. All the bank is required to disclose to you is an Annual Percentage Rate that they base on a Good Faith Estimate that has all of the fees low-balled to make the overpriced home loan seem more attractive.

Banks don’t offer wholesale mortgage rates to their customers because the bank makes most of their profit when your loan is sold to investors on the secondary market. Your bank may continue to service the loan after they sell it meaning you’ll never know the fast one your bank pulled on you. The profit your bank makes from selling your loan with a higher than market mortgage rate is called Service Release Premium. If you never shop from a wholesale mortgage source such as an honest mortgage broker you’ll never know how much the bank is overcharging for their mortgage loans.

If you want the lowest possible mortgage rate to purchase or refinance your existing home loan you’ll need to get a wholesale mortgage rate which is also known as a par mortgage rate. This means you can’t shop for the “best mortgage” lender or bank, you’ll have to shop for the right person to arrange your next home loan to get a wholesale mortgage rate.

You can learn more about finding the right person to arrange your next home loan so you can take advantage of wholesale mortgage rates while avoiding unnecessary mortgage junk fees by registering for my free underground mortgage refinancing videos. Here’s a sample of what you’ll get when you sign up today:

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Should Banks do Mortgages?

Robert — Sat, 28 Feb 2009 20:31:41 +0000

Are you considering refinancing your home mortgage loan with your bank or credit union?

There are several good reasons for considering taking out a new mortgage loan from your bank; however, there is one glaring problem with bank originated mortgage loans. Should banks do mortgages?

The following discussion about your bank’s dirty little secret could save you thousands of dollars on your next mortgage loan.

Should Banks do Mortgages?

What could be more convenient than making an online transfer from your checking account to your mortgage loan? Click, click…done. If you’re at that stage in your relationship with your bank and your mortgage loan you’ve probably already paid too much. Here’s why.

Real Estate Settlement Procedures Act

Also known as RESPA, the Real Estate Settlement Procedures Act is a very important bit of legislation that protects homeowners in the United States from predatory lending practices. Except for one not so small problem: the Banking Lobby spent millions of dollars lobbying Congress to have the laws changed so that your banks and credit unions are exempt from having to disclose their markup and profit margins from your home loan…and they pulled it off.

Service Release Premium

If you’ve spent any amount of time reading the mortgage articles on this site or watching the underground mortgage videos available on this website, you’re already familiar with Yield Spread Premium. For the uninitiated, Yield Spread Premium is a kickback that lenders pay to your mortgage broker for locking and closing your mortgage loan with a higher than necessary mortgage rate. Think of it as a commission paid to your mortgage broker for overcharging you.

Banks don’t use mortgage brokers to originate their home loans because they fund their loans with the banks money, cutting out the middleman so to speak. This is a good thing right? No mortgage broker, no Yield Spread Premium right? Not exactly. ..

Banks don’t offer wholesale mortgage rates to their customers, but they know what rates are available from wholesale lenders including what mortgage rate you could get from their competitors; however, the bank charges you mortgage rates based on what profit they want to make selling your loan on the secondary market. This markup of what you could have had and what you got creates Service Release Premium, or a premium profit for the bank.

The bank will never tell you what they’re doing with your mortgage rate because they’re not legally required to disclose any of this about your loan. Remember that loophole in the Real Estate Settlement Procedures Act? In a nutshell, this is why you should never refinance your home mortgage with your bank.

Mortgage Broker Banks

The successful lobbying of Congress to have banks excluded from RESPA legislation created a new kind of “direct lender.” Many mortgage brokers saw what the banks had accomplished for themselves and greedily decided they wanted in on the action. These brokers created a new kind of lender known as a “broker bank.” Instead of reselling loans from wholesale lenders these broker banks funded loans with their own cash and were therefore able to take advantage of the same loophole as your bank. You’ll see advertisements now and then for “direct lenders” that cut out the middleman when refinancing your mortgage.

Don’t be fooled by this bravado; the only reason for a mortgage broker to operate a business in this manner is to take advantage of their customers by exploiting this loophole in disclosure laws that are supposed to be protecting you from predatory lending practices.

How to Spot a Mortgage Broker Bank

How can you tell if the person you’re dealing with is operating as a broker bank? Ask them if they close in the name of their own company or the wholesale lender when refinancing your mortgage. If the answer is that they close in their own company’s name then you know that you’re dealing with a mortgage broker bank and would be better off finding someone else to refinance your home.

You can learn more about refinancing your mortgage with the right lender without paying this unnecessary markup of your mortgage rate or lender junk fees by registering for my Underground Mortgage Videos. Register today and you’ll be on your way to saving thousands of dollars on your next home mortgage loan.

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Refinancing Banks

Robert — Sat, 03 Jan 2009 20:30:12 +0000

You might be considering refinancing your home mortgage loan with your bank or credit union to take advantage of today’s low interest rates. After all, what could be more convenient than simply transferring your mortgage payment out of your checking account?

Are bank originated mortgage loans really the best deal for your home mortgage? Here are several tips to help you avoid making an expensive mistake refinancing your home loan.

Refinancing Banks & Your Mortgage Loan

Banks and credit unions love to brag about their mortgage loans. Bank of America for example loves to flaunt its “no fee” mortgage loans… but are they really a good deal? I’d say be sure and read the fine print before taking out a loan from your bank or credit union; however, thanks to the banking lobby there is no fine print for you to read. What do mean by this? Allow me to explain…

The Real Estate Settlement Procedures Act

Also abbreviated RESPA, this is the legislation that required mortgage lenders to disclose their fees and markup. Note that I said “required” as the Banking Lobby spent millions of dollars lobbying congress to change this disclosure legislation to exclude banks…successfully. That’s right, your bank and credit union is exempt from RESPA laws that require fair and honest lending practices in the United States. Banks are simply not required to disclose their markup or profit margins on your mortgage loan.

Service Release Premium

Big deal you might be thinking, bank mortgage rates have to be good to compete with other lenders right? Nope…your bank doesn’t care about being competitive, and most homeowners don’t know the first thing about mortgage rates to understand how banks are making their money.

So how exactly do banks make money from mortgage loans? They just sit back and collect interest from my mortgage payments right? Wrong!

Banks make the majority of their profits selling loans to investors on the secondary mortgage market. The higher the interest rate on your loan the more profit the banks make when your loan is sold. This is why the bank will try and close your loan with the highest mortgage rate possible. Banks know what mortgage rate you could get in the open market from a mortgage broker; however, they mark this rate up create a profit when your loan is sold. This markup of your mortgage rate by the bank is known as Service Release Premium.

Does Service Release Premium Really Matter?

How much could your bank really markup up your mortgage rate and does it really make a difference? Well, suppose you refinance your home for $300,000 with a 30 year fixed rate loan at 5.5%. What you didn’t know is that you could have had a 5.0% mortgage rate from a wholesale lender. What does this markup by the refinancing bank mean for your mortgage payment?

At 5.5% on a $300,000 mortgage your monthly payment will be $1700 per month. If you had the mortgage rate you deserve at 5.0% your monthly payment would only be $1610 per month. That’s $1080 per year you’re flushing down the toilet just to boost your bank’s profits.

How to Get a Wholesale Mortgage Rate

You don’t have to be a financial guru to refinance your mortgage with a wholesale mortgage rate. First of all you should avoid refinancing banks and credit unions no matter how convincing the salesperson or your neighbor Bob. Secondly, you need to find the right person to arrange your new mortgage. This person needs to be a mortgage broker, but not just any broker. Mortgage brokers, like banks, mark up mortgage rates for a commission so you’ll need to find the right broker for the job.

It is possible to refinance your home loan with a wholesale mortgage rate and pay only a 1.0% origination fee to the mortgage broker for arranging the loan. You can learn how to do this for yourself while avoiding costly lender junk fees by checking out my free mortgage videos on this website.

Check out my Underground Mortgage Refinancing Videos today and you’ll get immediate access to videos that save the average homeowner $1,000 per year… Guaranteed!

Wishing you success with your next home mortgage,

Robert Regehr

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Are Mortgage Brokers Better Than Banks When Refinancing?

Robert — Sun, 19 Oct 2008 04:52:15 +0000

In a single word…yes, your mortgage broker is better. There are a number of reasons that direct mortgage lenders and banks should be avoided at all costs when refinancing your home loan. Banks and other direct mortgage companies can legally hide the profit they make from marking up your mortgage rate where a mortgage broker is legally required to disclose their commission.

The Real Estate Settlement Procedures Act

The banking lobby spent millions of dollars having legislation passed requiring mortgage brokers disclose the commissions they receive on your loan. They also made sure that banks and other lenders that fund mortgage loans with their own capital were exempt from the law. This legislation known as RESPA requires your mortgage broker to disclose Yield Spread Premium on the HUD-1 statement you receive prior to closing.

Yield Spread Premium & Service Release Premium

The commission paid to your mortgage broker by a wholesale lender is called Yield Spread Premium. Brokers get paid by the lender when they lock and close your loan with an above market mortgage rate. If you learn how to recognize this markup you can avoid it when refinancing your home loan which essentially allows you access to wholesale mortgage rates. Service Release Premium on the other hand is the profit the bank makes when your loan with an above market mortgage rate is sold to investors on the secondary market.

Because banks are exempt from RESPA legislation they will never tell you how much your mortgage rate has been marked up for their profit. This type of markup is therefore impossible to avoid and reason enough never to take out a mortgage loan from your bank.

Avoiding Yield Spread Premium Is Easier Than You Think

You don’t have to be a financial guru to get a wholesale rate when refinancing your mortgage. Spend a little time learning how mortgage brokers are paid and you can easily negotiate with your broker to pay a flat origination fee without including Yield Spread Premium on your new home loan. You can learn more about refinancing with a wholesale rate by registering for the free videos found on this website.

The videos offer a step-by-step system for finding the right mortgage broker and the lowest interest rate while avoiding lender junk fees. Register today, these mortgage videos are yours free for a limited time.

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No Fee Mortgage Loans Don’t Exist

Robert — Thu, 27 Mar 2008 22:47:49 +0000

If you’re considering a “no cost” or “no fee” mortgage loan for your home loan there are several things you need to know about these loans to avoid paying too much. Whenever lenders talk about “no fee” mortgage loans they are always trading off a higher mortgage rate in exchange for lender fees paid at closing. Here are several tips to help you avoid falling for the “no closing cost” lie with your home mortgage loan.

What are no cost mortgage loans? No closing costs loans are simply a gimmick to get your business. There will always be third party closing costs that cannot be waived…if your lender is “waiving” these costs they may be paying them for you; however, they will mark up your mortgage rate to cover the cost.

When you take out a mortgage the person arranging your loan typically slips .50 to .75 percent markup of your interest rate to get a commission. If you take out a no cost mortgage you will have this markup plus as much as a full point markup from the lender. This higher mortgage interest rate can result in paying hundreds of dollars extra each month that you keep the loan. This is true of both the mortgage lenders and banks you see offering “no closing cost mortgages” as well as the “flat fee” loans.

Suppose you take out a $350,000 mortgage to purchase your home. The mortgage rate you qualify for paying your closing costs is 6%; however you elect to take a 6.75% mortgage to avoid paying closing costs. Your monthly mortgage payment at 6.75% on a 30 year fixed rate loan will be $2,270 per month. If you paid the closing costs upfront your monthly payment at 6% would have only been $2098. That’s an extra $2,064 you’ll pay every year you keep the loan.

In five years this “no fee” mortgage has cost you a whopping $10,320…money you’d still have in your pocket had you elected to pay your closing costs up front. You can learn more about saving money on you home loan while avoiding unnecessary markup of your mortgage rate and garbage fees with my free video tutorial.

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Avoid Broker Banks When Refinancing Your Mortgage

Robert — Wed, 20 Feb 2008 21:50:35 +0000

You might be asking yourself “What the heck is a Broker Bank?” Most people have never heard of broker banks…in fact, prior to 1999 they didn’t exist. Here are the basics that every homeowner needs to know about Mortgage Broker Banks when refinancing a home loan.

Before the Real Estate Settlement Procedures Act was amended to require mortgage brokers to disclose their profit margins made from locking and closing mortgages with above market rates, banks were losing a large portion of their profits to mortgage brokers.

The Banking Lobby decided to do something about this and spent millions of dollars lobbying Congress to have the disclosure laws changed; their goal was to gain an unfair advantage in the marketplace by requiring mortgage brokers to disclose the commission based markup of your mortgage interest rate.

What is a Broker Bank?

The banking lobby succeeded in having the law changed and of course banks are exempt from this new disclosure legislation. This change in the Real Estate Settlement Procedures Act sent mortgage brokers scrambling to take advantage of the same loophole exploited by banks. All a mortgage broker had to do was fund their own loans like a bank which would allow them to close in the name of their company instead of a wholesale lender…hence the Broker Bank was born.

The only reason a mortgage company or broker would choose to operate as a broker bank is to hide their markup of your mortgage interest rate. If you refinance your home with a bank or broker bank you’ll never know mortgage rate you could have had with an honest lender.

How to Recognize a Broker Bank

Banks are easy to spot; however, when it comes to recognizing broker banks things can get a little fuzzy unless you know what to look for. First of all, broker banks love to brag about doing their loans “in house.” The best way to find out if your mortgage broker is acting as a broker bank is to ask if they close in the name of the wholesale lender. If the answer you get is “no” and they are closing in their own companies name then you know with 100% certainty that they are a broker bank and cannot be trusted with your mortgage.

Beware Bank Wholesale Divisions

One of my readers emailed me that she was working with a broker for a loan through Wachovia. Her broker convinced her that this was okay because the lender wasn’t Wachovia directly, but their “wholesale division” known as Vertice. The problem with this logic is that the bank controls their wholesale division and the rate sheets provided to mortgage brokers from Vertice include the markup. On top of this the banks salespeople do not have the authority to negotiate for lower rates. Banks have enormous overhead they must cover and rely on overcharging to make a profit. This is true of every bank originated mortgage loan on the market today.

Do you think my reader paid too much for her mortgage refinancing with Wachovia? Absolutely…she never signed up for the free mortgage videos I offer and will pay thousands of dollars too much. It always amazes me why people don’t take advantage of a free product that will not only save them thousands of dollars in unnecessary finance charges but show them how to avoid garbage fees as well. Similar products sell for hundreds of dollars and don’t offer half as much insider mortgage scoop that I give away free every day. I guess the old saying is true…you can lead a horse (in some cases a goat) to water, but you can’t make her drink.

If you’d like to learn how to refinance your mortgage with a wholesale rate without paying lender and broker garbage fees, register for my free video tutorial.

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Wells Fargo Mortgage

Robert — Tue, 29 Jan 2008 17:52:38 +0000

Wells Fargo Mortgage is a division of Wells Fargo Bank, one of the largest banks created following a merger with Norwest bank and is currently the second largest mortgage lender behind Countrywide home loans.

Are you considering refinancing with Wells Fargo Mortgage or do you already have a mortgage from Wells Fargo?

Here are several tips you need to know about bank originated mortgage loans to avoid paying too much for your home loan.

Wells Fargo mortgage has earned a reputation similar to Countrywide as a predatory lender. They hook their customers with a free checking account and then sock it to with ridiculous fees and overpriced mortgage and investment accounts. Consumer watch groups like ACORN are constantly charging Wells Fargo with predatory lending especially with their home loans targeted to people with poor credit and home equity loan offerings.

Wells Fargo has even had their home office picketed on several occasions by consumer activists. As a former Wells Fargo Customer I can tell you that I recently switched my checking account to Bank of America and have never been happier. For checking and savings accounts you can’t beat B of A’s free accounts. But what about mortgage loans?

What’s Wrong With Bank Originated Mortgage Loans?

There’s plenty wrong with bank mortgage loans that your banker isn’t telling you. The biggest issue you need to be aware of is called Service Release Premium. Simply put this bank premium is the difference between the mortgage rate you could have had and the one the bank gives you. There are two types of mortgage rates out there today…wholesale rates offered by wholesale lenders and mortgage rates that have been marked up by banks and other mortgage companies for profit.

Another important distinction about banks…they aren’t legally required to play by the same rulebook as other mortgage companies and brokers. Banks are exempt from a very important law that protects homeowners from predatory lending practices called the Real Estate Settlement Procedures Act (RESPA). The Banking Lobby spent millions of dollars bribing your elected officials (after all, that’s how Washington works now) to have the disclosure laws changed so that banks are not required to disclose their profit margin or markup on your loan. Mortgage brokers are now required to disclose their markup known as Yield Spread Premium on the Good Faith Estimate and HUD-1 Statement; however, banks are not required to comply with the same law.

With this in mind why would you even consider taking out a mortgage from a company that doesn’t have to play the rules? It’s not just Wells Fargo that uses this unfair practice to exploit homeowners; it’s every bank and credit union out there. Banks do this because they make the majority of their profit by selling their mortgage loans to investors. The bank knows that loans with above market interest rates bring them the most profits and this is how they run their businesses.

If you’re not yet convinced that bank originated mortgage loans are not the way to go, try comparing true wholesale rates offered by an honest mortgage broker to the rate sheets offered by your bank and you’ll see that Wells Fargo Mortgage is not the way to go when refinancing your home loan. If you’d like to learn more about refinancing your mortgage with a wholesale rate and finding an honest broker to help you, check out my Underground Mortgage Videos.

These Underground Mortgage Refinancing Videos save the average homeowner $1,200 per year. Seriously, couldn’t you use that money back in your budget every month?

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Save for a Rainy Day With an Online Savings Account

Robert — Tue, 15 Jan 2008 23:50:14 +0000

If you’re looking for an online savings account, ING Direct’s Orange Savings account is the Cadillac of online accounts. Most banks are offering some type of online savings account today; however, very few offer the same features and the Orange account. Here are my experiences with ING and several tips to help you decide if the Orange online savings account is right for you.

Saving money can be extremely difficult for many people; according to financial advisor David Ramsey nearly 78% of all Americans live paycheck to paycheck. If this describes your finances you could be just one emergency away from a financial meltdown. The good news is that saving money is easier than you think. Tools like ING’s Orange online savings account make it very easy to stash money away from every paycheck that you’ll never miss.

ING was the first to offer the online savings account in 2000 allowing people who have outgrown their piggy banks to squirrel money away in a very liquid online savings account that earns a better return than those offered by banks or credit unions. One of the best features of ING’s Orange online savings account is the ease of access to your money; typically, your cash can be accessed in just a few business days. The best thing about the Orange online savings account is that there are no fees or minimum balances. There are also no tricks buried in the fine print that you’d find at a bank like Wells Fargo.

How can there be no fees or minimum balances? What’s the catch? There is no catch for you, but just because ING isn’t charging a fee for their online savings account don’t think they’re not making money from it. ING has almost ten times the amount of deposited funds than their nearest competitor.

Getting Started With an Online Savings Account

While I haven’t opened many accounts online, ING’s online savings account is the easiest account that I’ve ever opened. I do have many other accounts but I keep my ING online savings account just because it’s so easy to use and doesn’t cost me anything. Opening your Orange online savings account is easy; it takes about 5 minutes to complete the application. After you complete the application ING will make several test deposits to you checking account and once you confirm the amounts of those deposits, you’re ready to go.

Having referred a number of friends and family members to the Orange online savings account I can tell you that no one I know has ever had a problem with them. That includes cashing money out of the account which is handled by ACH direct deposit to your checking account. You can start your ING Orange online savings account by clicking here:

Orange Online Savings Account Features

Once your account is active you’ll have access to all of the nifty features that come with your Orange online savings account.

Cool Interface The user interface is slick and easy to navigate. The buttons are clear and intuitive. Everything you need to do is just…easy.

Sub-Accounts This feature allows you to use multiple accounts, each with it’s own unique account number. This allows you to designate an account for a specific goal, like saving up for vacation.

Refer a Friend Once you’re an ING customer you can refer your friends and put up to $250 in your pocket. ING pays a finder fee of $10 for up to 25 of your friends, coworkers, and family members.

Interest Paid at a Glance Your ING control panel shows how much interest was paid to your account this month. You can see exactly how much your money has earned.

Other cool features include automatic deposits from your checking account, the ability to link up to three external accounts, and downloading your transactions automatically into MS Money or Quicken. ING also allows you to set up accounts for children. If you’ve been looking for a way to stop living pay check to pay check or want to start saving for a rainy day or that upcoming vacation, ING’s Orange online savings account could be your answer.

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Wells Fargo Mortgage

Robert — Sat, 12 Jan 2008 21:46:15 +0000

If you’re considering taking out a mortgage to purchase your home or refinance your existing mortgage with a bank like Wells Fargo, here are several things to consider first. Refinancing with the wrong lender could not only cost you thousands of dollars but could lead to the loss of your home. Here are several tips to help you decide what kind of mortgage lender is right for you.

Wells Fargo mortgage is a fully owned subsidiary of Wells Fargo Bank. Today Wells Fargo is the second largest mortgage company in the United States just behind Countrywide. Wells Fargo bank and its mortgage subsidiary is a darling on Wall Street and a favorite pick of mutual fund managers and investors because of their incredible profit margins. I’ve never been a customer of Wells Fargo Mortgage; however, I had a checking account with Wells Fargo Bank and I can tell you I’ve never felt more nickeled and dimed since staying at the Luxor hotel in Las Vegas.

Wells Fargo’s profit margins are so high not only because of all the fees they charge with their so called free checking accounts, but from their overpriced mortgage loans and expensive investment accounts. Because of their consumer gouging business model Wells Fargo has received negative press from several consumer watch groups, including ACORN, charging the bank with predatory lending practices. If you’re considering taking out a mortgage from Wells Fargo, Bank of America or any other bank or Credit Union, here are several compelling reasons not to.

Banks and the Real Estate Settlement Procedures Act (RESPA)

RESPA is legislation in the United States that protects homeowners from predatory lending practices by requiring mortgage lenders to disclose their profit margins and markup. The Banking Lobby spent millions of dollars in the early 90s lobbying Congress to have the law changed, and they succeeded. Banks are now exempt from the Real Estate Settlement Procedures Act.

What does this mean for you? Your bank is not required to tell you anything more about their mortgage products than the Annual Percentage Rate (APR). While separate truth in lending legislation requires banks to disclose some form of APR for their mortgage products, there is no standard method for calculating the APR or requirements for what fees must be used in the calculations. This means your bank is free to calculate the APR however they like; this limitation in the law has turned the Annual Percentage Rate into more of a marketing tool for lenders than the consumer protection legislation it was intended to be.

Let’s get back to RESPA shall we? Because your bank is exempt from this legislation you’ll never know what the bank’s profit margin is on our loan. And just where does this profit come from? Many people think that once they close on a mortgage the bank kicks back and cashes their payment checks each month to make a profit from the interest paid on the loan. This simply isn’t true. Banks make the majority of their profits by selling mortgages to investors on the secondary market. Furthermore, the bank maximizes this profit by selling loans with above market mortgage rates.

Above Market Mortgage Rates and Service Release Premium

Your bank isn’t stupid…they know exactly what’s going on in the mortgage industry and what the wholesale mortgage rate is every day. Furthermore, the bank knows exactly what mortgage rate you qualify for based on a thorough examination of your financial details. (sixteen factors to be complete) The bank determines your mortgage rate and then marks up that rate to boost profits when the loan is sold. This markup of your mortgage rate is called Service Release Premium and is the reason you should never take out a mortgage from any bank. Period.

Not convinced? Don’t ask your banker. Most bank employees have never heard of Service Release Premium and couldn’t quote you a wholesale mortgage rate if their very lives depended on it. Bank employees will show you their daily rate sheets and swear on a stack of bibles that their rates are not marked up. The problem is that bank mortgage rate sheets have Service Release Premium built into them. The only way to recognize this is to compare your bank’s mortgage rates to those offered by wholesale mortgage lenders and you can easily spot their markup.

Can You Get Wholesale Mortgage Rates?

Do you simply call up a wholesale lender and ask for a wholesale mortgage rate? Unfortunately, no. Every wholesale lender out there has a retail division that deals with the public. If you contact one of these lenders you’ll be getting the same markup of your mortgage rate that the bank adds. Does this mean wholesale mortgage rates are out of reach of the average homeowner? Of course not!

How to get Wholesale Mortgage Rates

You can take out a mortgage with a wholesale rate and avoid lender garbage fees. In order to do this you need to find a mortgage broker willing to give you access to wholesale rates without overcharging you. These brokers do exist; however, you’ll need to learn how to negotiate with them to get the deal you want.

You can learn more about negotiating with a mortgage broker for wholesale rates while avoiding junk fees by registering for my free mortgage refinancing video tutorial.

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