Mortgage Refinance Guide

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, register for our free video tutorial.

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.

What’s a good reason for refinancing your mortgage loan? Is it always to get the lowest payment or are there other reasons for taking out a new home loan? Many people will tell you that you should “Never” refinance your mortgage unless the new mortgage rate is at least two percent lower than what you’re paying now. This is probably the worst mortgage advice in the history of bad advice.

Refinancing your mortgage could be a good idea for you if there is some financial benefit over the long term. Contrary to popular belief a lower mortgage payment may not have long term benefits, especially if you end up paying more to your lender for your financing. There are a number of perfectly good reasons for refinancing without qualifying for a lower mortgage rate. Many homeowners refinance with a higher monthly payment using a 15 year mortgage to build equity in their homes at a faster rate. Other reasons for a higher payment include borrowing against your equity to make home improvements or consolidate your high interest debts. If your current mortgage is with one of the predatory banks or mortgage lenders you’ve been hearing about in the news there’s no better reason than for refinancing than finding a reputable mortgage company.

So what should you look for when refinancing? Many homeowners obsess over mortgage rates and overlook the unnecessary fees in their Good Faith Estimate. Other homeowners don’t understand the retail nature of their mortgage interest rates and overpay hundreds of dollars every month because their mortgage interest rate has been marked up to give the broker a bonus. The mortgage industry is every bit as bad as a shady used car salesman; homeowners who take the time to do their homework before refinancing can save themselves thousands of dollars and many headaches.

Where to get started doing your homework when refinancing? The first thing you need to familiarize yourself with is Yield Spread Premium. It’s okay if you’ve never heard of this before; it’s not as scary as it sounds. Yield Spread Premium is simply the markup your broker adds to your mortgage rate to get a bonus from your lender. The problem with this markup is that you’re already paying an origination fee for the broker’s work; Yield Spread Premium really just double-dipping in your pocket…a sleazy way to make a buck.

Yield Spread Premium (YSP)

How does this mortgage scam work? Your mortgage broker qualifies you for a specific interest rate when the wholesale lender approves your loan. Most brokers will not tell you the interest rate you qualified or show you a wholesale rate sheet from the lender. Instead they mark up this interest rate based on how much they think you’ll overpay. (Sounds like a used car salesman right?) For every quarter percent you overpay for your new mortgage rate the broker gets a commission from the lender of one percent of your mortgage.

Considering that you’re already paying one percent or more for loan origination, YSP can actually double, even triple your broker’s compensation for originating your loan. Sounds like a good deal for the broker; they’ll even tell you not to worry about this fee on your HUD-1 statement because it’s being paid by the lender. The question you need to be asking is why the lender would pay this fee in the first place. Wholesale lenders make a bundle selling loans with above market interest rates to investors. Yield Spread Premium is an incentive for overcharging you, plain and simple.

Don’t be fooled by a fast-talking mortgage broker…do you really want to be making his boat payment for the next thirty years? You can learn more about refinancing your home loan without being ripped off by registering for this free mortgage refinancing tutorial.

Countrywide Home Loan’s problems continue as accusations of predatory lending practices continue to be reported by the media. If you are in the process of refinancing your mortgage with a loan from Countrywide you might want to think twice after watching this video.

Countrywide isn’t the only mortgage giant being accused of predatory lending practices. Wells Fargo Bank is stealing the spotlight with similar accusations of predatory practices including excessive fees and mortgage rates, prepayment penalties, hidden variable rates, balloon payments, and falsifying information to the credit bureaus.

If you’re in the process of refinancing your home and want to avoid predatory lenders and learn how to refinance your mortgage with a wholesale mortgage rate register for my free mortgage refinancing toolkit.