Mortgage Refinance Guide

Most homeowners don’t understand how their mortgage broker is paid for the work they do arranging a home loan. Brokers are compensated for their work from two sources; understanding how this compensation works will help you avoid paying too much for your next mortgage loan. Here are several tips to help you understand how mortgage brokers overcharge people to boost their commissions.

What is YSP?

YSP or Yield Spread Premium is a fee paid by the wholesale lender when your broker locks and closes your mortgage with an above market interest rate. Lenders reward mortgage brokers for overcharging because these loans bring a premium profit when sold to investors. The amount of Yield Spread Premium depends on how much your broker overcharges you. For every .25% you agree to overpay the broker’s “kickback” is 1% of your loan amount.

Suppose you are refinancing your home loan for $250,000. The broker quotes you a rate of 6.75% but doesn’t tell you that you’ve qualified for 6.0%. The spread between what you could have had and what you got is .75% which creates 3% of Yield Spread Premium for the broker. Your broker receives a kickback of $7,500 from the lender for overcharging you…in addition to the origination fee that you’re already paying.

Yield Spread Premium can be hard to spot unless you know what to look for. Many brokers “forget” to list the fee on your Good Faith Estimate. If this is the case the next opportunity you will have to catch it is on the rate lock confirmation from the wholesale lender. Make sure the confirmation you receive after locking your rate comes from the lender and not the broker…many brokers provide rate lock confirmation typed up on their own letterhead. If you get a rate lock confirmation typed up on the broker’s letterhead you do not have proof of anything…let alone guaranteeing your mortgage rate.

Your last opportunity to catch Yield Spread Premium before closing on your new mortgage will be on the HUD-1 statement. The fee is usually listed around lines 810-811; however, you may find it further down. It is often called “mortgage broker rebate” or “YSP paid to broker.” If you find this on your HUD-1 statement you have a mortgage rate that includes commission based markup.

The Perfect Mortgage Loan

Most homeowners don’t know what a good mortgage deal looks like. It is possible to get a wholesale mortgage rate without Yield Spread Premium and pay a one percent origination fee to the broker. You can learn more about refinancing your home with a wholesale mortgage rate while avoiding junk fees by registering for my free video tutorial.

If you are in the process of refinancing your mortgage you might encounter POC charges. POC stands for “Paid Outside of Closing” and is a fee paid to your mortgage broker. Why does your broker receive this money and should you be concerned about how it affects your mortgage rate? Here are several tips to help you understand POC charges and avoid being taken advantage of when refinancing your mortgage loan.

What Are Paid Outside of Closing Fees?

This charge appears on your HUD-1 statement on line 810-811. It is frequently called a mortgage broker rebate but you will also see it called Yield Spread Premium or YSP paid to broker. This fee is a commission paid by the lender for closing your loan with an above market mortgage rate. That’s right; your lender rewards the broker for overcharging you.

P.O.C. Charges = Yield Spread Premium

Yield Spread Premium is the technical term for the incentive paid to your broker for overcharging you. Your broker knows the mortgage rate you qualify based on your financial details; (it actually takes sixteen pieces of financial information form you to accurately quote a mortgage rate) however, your broker marks up the rate based on what they think you’ll pay. Imagine a used car salesman pricing a car based on how naive they think the buyer is…mortgage brokers work in much the same.

Your mortgage broker marks up your rate because the lender pays a bonus of one percent of your loan amount for every quarter percent they overcharge you. This kickback from your lender is the Yield Spread Premium and will often double or even triple your mortgage broker’s compensation for originating your loan, at your expense of course.

How Can You Avoid P.O.C. Mortgage Charges?

Fortunately homeowners who do their homework can avoid POC charges and refinance their home loans with wholesale mortgage rates while avoiding unnecessary garbage fees. Refinancing with a wholesale rate can save you thousands of dollars and RefiAdvisor’s free DVD will show you how to do just that. Register for your free refinancing DVD today, the videos are yours with no obligation.

The FHA Secure mortgage program helps homeowners who are falling behind on their Adjustable Rate Mortgages and could be risking foreclosure. This program is currently limited to homeowners that purchased their homes with Adjustable Rate Mortgages scheduled to reset; however, it could be expanded in the future to include homeowners with Fixed Rate Mortgage loans.

Risky Adjustable Rate mortgages are causing many Americans to fall behind on their payments and are contributing to a record number of mortgage foreclosures in this country. Homeowners that have fallen behind on their payments typically have a difficult time refinancing their loans because they are unable to qualify for a new mortgage. FHA Secure refinancing allows these homeowners to qualify for low interest rate, government insured, fixed rate mortgage loans.

FHA Secure mortgage loans are insured by the government; however, these loans are made through conventional mortgage lenders. These lenders are required to follow FHA guidelines for underwriting mortgage loans and you will have to get a new appraisal on your home. The downside of refinancing with an FHA Secure loan is that you will be required to pay for Private Mortgage Insurance and the premiums will be based on your past credit history. Private Mortgage Insurance lowers the risk of administering this program for the FHA; homeowners with poor credit ratings will be required to pay higher premiums than those with good credit ratings.

The FHA hopes to help 80,000 homeowners with this program and more when the program is expanded. If you are considering refinancing with an FHA Secure mortgage you will need to do your homework and shop for a mortgage that does not include unnecessary markup of your interest rate and junk fees. Many homeowners think that because they are getting a mortgage from the FHA they don’t have to worry about lenders taking advantage of them; however, this is simply not the case. Banks still charge Service Release Premium and wholesale lenders still pay Yield Spread Premium on mortgage loans insured by the FHA.

If you’d like to refinance your home with an FHA Secure mortgage without getting ripped off by a predatory mortgage lender, register for a free video tutorial. Get started today, these videos are yours free with no obligation and will show you how to avoid foreclosure by refinancing your mortgage with an FHA Secure mortgage with a wholesale mortgage rate.

If you are in the process of refinancing your mortgage, a wholesale mortgage lender can save you thousands of dollars. Many homeowners refinance with their bank or local mortgage company and don’t realize they are really getting a retail mortgage rate. Even Internet lenders offer retail mortgage rates to their customers. Finding the right mortgage with a wholesale interest rate can be tricky; however, doing your homework and learning how to negotiate for a wholesale mortgage rate is easier than you think. Here are several tips to help you find a wholesale lender while avoiding junk fees.

What Are Wholesale Mortgage Lenders?

Wholesale mortgage lenders are large financial institutions that offer loans through mortgage originators. These “loan originators” are the companies you see online and those with retail storefronts including mortgage brokers. When you take out a home loan from a retail mortgage company you are not only paying a fee for the “middleman’s” services, but are paying retail markup of your mortgage interest rate. You might think that bypassing the mortgage broker and going directly to a wholesale lender will get you a wholesale mortgage rate; however, this is simply not the case. Wholesale lenders do not deal directly with the public; although, most have retail divisions. If you contact a wholesale lender yourself you will be dealing with that lender’s retail division.

How Do You Get a Wholesale Mortgage Rate?

In order to qualify for a wholesale mortgage rate when refinancing your mortgage you’ll need the help of a mortgage broker. Banks don’t offer wholesale rates; they markup up their interest rates to boost their profits when the bank sells your mortgage. If your bank is out of the question and the only way to get your hands on a wholesale mortgage rate is with a mortgage broker, how can you find the right person for the job?

Mortgage Brokers Are Used Car Salesmen

Sad, but it’s true. All you are to your mortgage broker is a mark. Your mortgage broker will try and place you with the mortgage that brings them the largest commission. You can be sure that this is the wrong loan for your situation. If you assume that your mortgage broker does not have your best interest at heart and negotiate accordingly your will be well on your way to refinancing with a wholesale mortgage rate.

Before you can negotiate with your mortgage broker it is important to understand how mortgage brokers are compensated for their work. This compensation comes from two sources; origination fees charged by the broker and Yield Spread Premium by the lender.

Origination Fees and Yield Spread Premium

The origination fee that appears on your Good Faith Estimate is charged by your mortgage broker and is intended to be compensation for their part in arranging your mortgage. Many brokers charge too much for their origination fees. How much should you agree to pay for this fee? A reasonable amount to pay your mortgage broker for loan origination should not be more than one percent of the amount you are borrowing. Any more than this and you’re simply paying too much. How about Yield Spread Premium? Most homeowners have never heard of this unnecessary markup of their mortgage interest rate.

What is Yield Spread Premium? The second form of compensation your broker receives is a kickback from the lender for marking up your mortgage interest rate. Mortgage brokers mark up your mortgage interest rate because the lender pays them one percent of your loan amount for every quarter percent they overcharge you. This kickback is paid in addition to the origination fee you are already paying for the mortgage broker’s work. In most cases Yield Spread Premium will double or even triple the compensation your mortgage receives.

You Can Get a Wholesale Mortgage Rate

What’s the secret of refinancing with a wholesale mortgage rate? The secret is actually quite simple; avoid paying Yield Spread Premium and you’ll be able to refinance your mortgage with a wholesale mortgage rate. How can you avoid paying Yield Spread Premium? Refinancing with a wholesale mortgage rate means finding a broker willing to work for an origination fee alone without charging you Yield Spread Premium. This is where your negotiating skills come into play. Don’t be intimidated by negotiating with your mortgage broker.

Mortgage Broker Negotiation

Negotiating for a wholesale mortgage rate is easier than you think. You can start by telling your prospective mortgage brokers that you know how Yield Spread Premium works and will not accept any mortgage offer that includes the markup. Try negotiating with local mortgage brokers in your area that are self employed. You may have better luck dealing with this type of mortgage broker because those working for a large firm may not have the authority to broker the deal you need when refinancing your mortgage.

You can learn more about negotiating with your mortgage broker for a wholesale mortgage rate, including expensive pitfalls to avoid by registering for a free mortgage video tutorial.

Refinancing your mortgage loan can be a stressful time for any homeowner. No one wants to pay too much when taking out a new loan; however, most homeowners don’t fully understand how loan originators and lenders make their money. Learning how your mortgage broker is compensated for their work will not only help you avoid paying too much but show you how to refinance your home with a wholesale mortgage rate. Here are several tips to help you refinance your home with a wholesale mortgage rate.

First Things First: What is a Loan Originator?

Mortgage loans are retail products like any of the other purchase we make as consumers, and there’s always someone in the middle trying to make a buck. This “middleman” is your loan originator. This person could be a mortgage broker or a loan representative at the mortgage company arranging your loan.

Mortgage loans are funded by wholesale lenders that do not deal with the public directly. You might think that by contacting a wholesale lender you’ll get around the middleman and refinance with a wholesale interest rate; however, most wholesale lender have retail divisions and will not get a wholesale mortgage rate by tying to slip on past the middleman.

How Do You Get a Wholesale Rate?

In order to gain access to wholesale mortgage rates when refinancing you’ll need to enlist the help of a mortgage broker. There are problems you’ll need to overcome to get wholesale mortgage rates; mainly that your mortgage broker is paid by commission and a large portion of their bottom line comes from closing loans with retail mortgage rates.

What Are Retail Mortgage Rates?

Retail mortgage loans include the loan originator’s markup of your mortgage interest rate. In order to fully understand your mortgage loan you need to understand how loan originators, in this case your mortgage broker, are compensated for their work. Mortgage brokers receive their compensation from two sources. The first is by charging you an origination fee, also called origination points, for arranging your mortgage loan.

This origination fee is charged as a percentage of your mortgage amount. Remember that one “point” is one percent of your loan amount and you should never agree to pay more than one percent to the broker for loan origination. If your mortgage broker refuses to negotiate on the origination fee you should find another broker for your new mortgage loan.

The second way that your loan originator receives compensation is by marking up your mortgage interest rate which is what we are attempting to avoid. This markup of your mortgage interest rate by the loan originator is called Yield Spread Premium. According to the Secretary of Housing and Urban Development, unnecessary mortgage rate markup will cost American homeowners nearly sixteen billion dollars this year. Markup of your mortgage rate by the broker is completely unnecessary because you’re paying the broker a perfectly reasonable origination fee for their work. Not only is Yield Spread Premium unnecessary but most mortgage brokers forget to mention that they’re charging you the markup or try and explain it away. If your mortgage broker tells you not to worry about Yield Spread Premium because the fee is being paid by the lender they’re lying to you.

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