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.

Mortgage loans can be confusing and intimidating for many homeowners. Terminology like APR is not only confusing, but in the case of Annual Percentage Rate is misleading. Here are the basics you need to know about Annual Percentage Rate (APR) and your mortgage rate when comparison shopping loan offers.

Annual Percentage Rate (APR)

What is the APR and can you rely on it when shopping for a mortgage loan? Banks and mortgage lenders are required to publish the Annual Percentage Rate for their loan offers. The APR is supposed to express the total cost of the loan expressed as an annual percentage rate. This sounds like a good idea; however, Truth in Lending laws do not stipulate how mortgage lenders and banks should calculate the APR or even what fees and costs should go into the calculation.

Because there is no standard for banks and lenders to use when calculating the APR it cannot be relied on when comparing offers from one lender to the next. In order to comparison shop effectively you need to compare mortgages of the same term length and type of mortgage rate. It is also a good idea to compare rate quotes issued on the same morning or afternoon due to the volatility of mortgage interest rate.

How to Comparison Shop for a Mortgage

Because the Annual Percentage Rate is not reliable, how can you compare loan offers effectively? Comparison shopping for a mortgage can be a very difficult task because you will not have an accurate picture of loan costs until you receive the HUD-1 statement prior to closing. You can use the Good Faith Estimate to compare loan offers; however, keep in mind that this document is only as good as the person preparing it is honest.

Another problem with the Good Faith Estimate is that many mortgage brokers low ball third party settlement charges to make their offers seem more attractive. They may also leave commission based markup of your mortgage interest rate off the Good Faith Estimate completely. This is why you must reconcile your Good Faith Estimate with the HUD-1 statement before closing on your new mortgage.

You can learn more about comparison shopping for a new mortgage while avoiding expensive pitfalls like the Annual Percentage Rate with a free mortgage DVD. Order yours today, the DVD is yours free with no obligation.

If you are in the process of taking out a new mortgage to purchase your home or refinance your existing mortgage, the fees you pay can make the difference between getting a great mortgage loan and paying too much. The fees on your Good Faith Estimate are often cryptic and many brokers leave the most important loan processing fees out completely. Here are several tips to help you make sense of mortgage fees and avoid paying too much for your next mortgage loan.

Your Good Faith Estimate is Just an Estimate

The most important thing to understand about the Good Faith Estimate is that it is just an estimate. Mortgage brokers frequently lowball loan processing fees to make their loan offers appear more attractive. Brokers also frequently leave their markup of your mortgage rate off the Good Faith Estimate completely. If the Good Faith Estimate is unreliable, what can you use to get a good idea of what your loan processing fees are?

The good news is that the HUD-1 will accurately reflect all of your loan processing fees and markup. The problem is that you will not typically receive this document until 24 hours prior to closing. Once you have reconciled the loan processing fees and markup on the Good Faith Estimate with your HUD-1 statement you will need to have a heart-to-heart discussion with your mortgage broker about any discrepancies you find.

Beware Mortgage Junk Fees

There are a number of junk fees on your Good Faith Estimate and HUD-1 statement that you need to be aware of. One of the most notorious junk fees is the so called “rate lock fee.” Mortgage brokers charge this fee for “locking in” your mortgage interest rate. What you need to know about rate lock fees is that lenders do not charge your mortgage broker a fee for locking your rate. This fee is entirely invented by your broker to line their pockets at your expense and is complete garbage.

Other junk fees you need to keep an eye out for include broker courier fees, application fees, and loan processing fees. Many mortgage brokers try and justify their loan processing fees by telling you that they use a “professional loan processor” to prepare your file and charge you as much as $500 for the service. What do you get for your $500? Your “professional loan processor” will print out the required documents and mail the application and disclosure statements to you for signature, and then FedEx the entire folder to the underwriter for loan approval. Total “processor” time necessary, one hour maybe two…Is this paperwork shuffling worth a $500 fee? I don’t think so…do you?

Watch Out For Yield Spread Premium

If you’re not already familiar with Yield Spread Premium it is the markup your mortgage broker adds to your mortgage interest rate to get a commission from the lender. Many brokers leave this markup of your Good Faith Estimate altogether and then cleverly disguise it on your HUD-1 statement. When questioned about Yield Spread Premium many mortgage brokers get defensive, even angry. Your mortgage broker might tell you that because the fee is not coming out of your pocket you shouldn’t worry about it.

The problem with Yield Spread Premium is not the fact the lender is paying the broker a fee, but the reason the lender is paying your broker a fee. Your broker receives this fee because you’ve agreed to pay an above market mortgage rate and for no other reason. In fact, Yield Spread Premium is the number one reason people overpay for their mortgage loans and according to the HUD Secretary is responsible for overcharging homeowners in the United States nearly sixteen billion dollars each year.

Avoiding Yield Spread Premium needs to be your number one priority when applying for a mortgage loan. If you’d like to receive more advice about taking out a mortgage without paying too much, register for the free mortgage refinancing blueprint available from this website.

Mortgage loan processing is a confusing aspect of refinancing for many homeowners. Many mortgage brokers charge a fee as high as $500 or more; however, isn’t this just a junk fee?

Many mortgages brokers justify their fee by saying they use a “professional loan processor” to process their files. First of all, what the heck is a “professional loan processor” and if this person gets paid $500 an hour for their work, where can I sign up? Nonetheless, here and the pros and cons of the broker’s “professional loan processor” argument to help you decide if “processing fees” are legitimate expenses when refinancing your mortgage.

Mortgage Loan Processing

What happens when a mortgage broker “processes” your loan application? Once your mortgage broker has sold you on a loan offer they’ll set up a file in whatever origination software that broker is using. After they’ve priced out the loan including the potential markup of your interest rate they’ll turn the file over electronically to the “loan processor.”

The “mortgage processor” checks the file for errors (electronically of course…computers do most of the work). If everything checks out the processor prints the application documents and disclosures. The necessary documents for closing your new mortgage include:

Once the application and mortgage documents have been sent to you for signature, the loan processor begins checking the title and proof of insurance and verifies your income using w-2s or bank statements. After your file is complete the processor assembles the necessary documents for the lender you’ve chosen and transfers the file to the loan underwriter. These documents are typically sent via FedEx or other courier. Your mortgage application has not yet been approved.

At this point the loan processor’s job is done and your file is in the hands of the underwriter. How much time is spent preparing your documents? One hour…maybe two? Is printing out documents prepared by a computer worth a $500 processing fee? Shouldn’t your mortgage broker print out their own paperwork?

If a mortgage broker’s time is that valuable they could easily find cheerful college students at temp agency to do this work for $15 an hour…how can you possible justify a $500 processing fee by someone that has nothing to do with underwriting the loan? I’m sure loan processors are real people with kids to feed; however, for the work necessary to get your file to the underwriter there is no justification for a $500 processing fee.

What do you think? Is the application processing fee a valid expense?

Leave your thoughts and comments below…

As for me, I think not…tell your mortgage broker to take out the trash and refuse to pay junk fees when refinancing your home. You can learn more about your mortgage refinancing options, including costly pitfalls to avoid with my free video tutorial. Get started today, there is no obligation and doing your homework could save you thousands of dollars. You can sign up for immediate access by clicking the DVD image at the top of this page.