RESPA

If you’re in the process of shopping for a lender to refinance an existing mortgage or for a loan to purchase your home, there are several things you need to know about prospective mortgage lenders. Doing a bit of homework before your refinance will not only help you avoid crooked nationwide lending companies but could save you thousands of dollars. Here are several tips to help you find the perfect lender for your next home loan.

There are literally hundreds of mortgage lenders and banks out there offering mortgage loans. How do you choose the best lender for your situation?

Before I can answer this question it is important to understand the difference between retail and wholesale mortgage rates. Nearly all of the quotes you receive from banks and mortgage companies are retail quotes that include commission based markup. How can you get a wholesale mortgage rate? Many people think that if they contact a wholesale lender directly they can cut out the middleman and the retail quote. This simply isn’t the case…even if you contact a wholesale lender yourself you’ll be dealing with the retail division of that lender and will not get a wholesale rate. The only way to get a wholesale rate is by finding the right mortgage broker to originate your home loan.

How to Shop for a Mortgage Loan

Mortgage shopping means collecting quotes from dozens of lenders and comparing rates, points, and closing costs right? If the quotes you collected on the Internet and from local mortgage companies and brokers were correct this would be the right way to shop for a home loan. The problem is the quotes you receive are not accurate. Most mortgage companies will tell you exactly what you want to hear to get your business…and then switch you to a loan that charges what they want you to pay. How do mortgage lenders do this and get away with it?

Good Faith Estimates Are Not Your Friends

The Good Faith Estimate your banker or broker gives you is just that…it’s an estimate. Given in “good faith”…but what does that really mean? Absolutely nothing…shopping for a mortgage is a lot like dating. Mortgage companies always put their best foot forward to make a good impression and get you to go on that second date. Once they’ve got you that’s when you find out about all the excess baggage in fees and interest rate markup…often too late. What is this hidden interest rate markup? If you spent any amount of time reading the mortgage articles posted on this website you’ll have heard of Yield Spread Premium.

Hidden Commission Fees

Yield Spread Premium creates a hidden commission for your broker. Don’t think you can avoid this hidden commission going with a bank or credit union. While you won’t be paying for Yield Spread Premium with a bank mortgage loan you still have the same markup…only with a different name. When your mortgage rate is inflated by a bank or credit union the hidden commission is called Service Release Premium. Only in this case there’s nothing you can do about it due to a loophole in the Real Estate Settlement Procedures Act. The only way to get a wholesale mortgage rate is with an honest mortgage broker.

You Can Take Out a Mortgage and Pay Only 1%

Paying one percent of your loan amount is a perfectly reasonable fee for the work your mortgage broker does on your loan. There is no reason whatsoever to tolerate any markup of your mortgage rate for Yield Spread Premium to go in your mortgage broker’s pocket. So what is Yield Spread Premium? Simply put, it is a percentage of your loan amount created when the mortgage broker locks and closes your home loan with an above market interest rate. Here’s an example to illustrate the concept.

Suppose your existing home loan is for $300,000. Your mortgage broker closes your new loan at 6.25%. What you don’t know is the lender behind your loan approved you for 5.5%. The spread between what you got and what you could have had creates a hidden bonus for your broker of 3% of your loan amount. This means your broker pockets $9,000 in addition to any of the fees they charge you for loan origination, processing, or other garbage fees found on your Good Faith Estimate. Where does this $9,000 come from? The broker receives a kickback of 1% for every .25% you agree to overpay. In the previous example you overpaid .75% (6.25%-5.5%=.75%) which created 3% of Yield Spread Premium.

What does this mean for you? On a 30 year mortgage at 6.25% your payment will be $1,850 when it could have been $1700. You’re throwing away $150 per month which is $1800 a year just because your mortgage broker lied to you for a commission. I don’t know how you feel about it but $1800 is a lot of money. The good news today is that you can avoid this unnecessary markup of your mortgage rate if you find the right broker to build a relationship with. Do this and you’ll have a win-win relationship for both of you…you get someone to originate your loans without ripping you off and your broker gets a loyal customer for life…clearly a win-win situation for both of you.

How to Find an Honest Mortgage Broker

There are hard-working mortgage professionals out there that don’t abuse Yield Spread Premium…you just need to know how to find them. By finding the right self-employed mortgage broker to originate your loan you’ll avoid garbage fees and commission based markup of your interest rate. You can learn more about finding the right mortgage broker for the job and avoiding all of the unnecessary crap thrown at you by dishonest mortgage companies by registering for my free mortgage video tutorial.

Technorati Tags: mortgage-shopping, RESPA, up-front-mortgage-broker, wholesale-mortgage-rates, yield-spread-premium

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 a free mortgage video tutorial.

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