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.

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.

If you’re considering refinancing your mortgage for any reason and are thinking of taking out the new loan from your bank, there are several very good reasons why you should not do this. While it’s true that mortgage brokers have a reputation for overcharging their customers, banks are actually worse due to loopholes the laws requiring lenders to disclose their profit margins. Here are several tips to help you avoid paying too much when refinancing your home mortgage loan.

Real Estate Settlement Procedures Act (RESPA)

You might have heard of the Real Estate Settlement Procedures Act which requires mortgage lenders to disclose their fees and markup. What you might not know is that thanks to the Banking Lobby your bank is exempt from this legislation and not required to disclose any this information to you. Banks take full advantage of this loophole in the law by charging their customers the interest rate markup known as Service Release Premium. Fortunately, once you understand how wholesale mortgage rates work this markup is easy to recognize.

What is Service Release Premium (SRP)?

Banks are in the mortgage business to make money. Banks know the rates that other lenders offer and they know the rate you could get from a wholesale lender. The mortgage rate your bank offers is marked up to include Service Release Premium.

This is a “premium” mortgage rate and is designed to boost the banks profits when your mortgage loan is sold to investors. Once you close on your mortgage the bank immediately turns around and sells your loan on the secondary market.

Banks know that loans with above market mortgage rates bring them higher profits and this is why Bank mortgage rates will never be competitive. Banks rely on the fact that the majority of homeowners do not understand mortgage rates and that they are exempt from the Real Estate Settlement Procedures act to fleece their customers out of thousands of dollars.

Don’t Trust Your Banker’s Rate Sheets

Most bank employees have never heard of Service Release Premium and will swear to you that their rates have not been marked up. They will even show you the Bank’s rate sheets for that day claiming that their rates are competitive. The problem with the Bank’s rate sheets is that they already have Service Release Premium built into them. Only by comparing the banks rates to the wholesale mortgage rates offered by a broker can you spot the bank’s markup. Because the bank is not required to disclose their markup of profit margin for your loan you will never know exactly what your bank is charging.

Upfront Mortgage Brokers Can Save You Thousands

Most mortgage brokers do not offer their customers wholesale rates. Just like banks these mortgage brokers mark up the interest rate to earn a commission from the lender. When this markup is made by a mortgage broker it is called Yield Spread Premium. Because you are already paying this person an origination fee for arranging your loan, the markup is not only unnecessary, but is dishonest.

There are honest mortgage brokers willing to work for a one percent origination fee. These brokers are frequently called “Upfront Mortgage Brokers” because they disclose a flat fee upfront and do not charge Yield Spread Premium with their loans. You can learn more about refinancing your mortgage without paying Service Release Premium or Yield Spread Premium by registering for a free mortgage DVD.

If you are in the market for a new mortgage loan, doing your homework before applying can literally save you thousands of dollars and many headaches. The mortgage industry has earned a reputation for sleazy sales tactics rivaling the worst used car salesman; most mortgage brokers today only care about pulling in a six figure salary regardless of who they step on. Here are several tips to help you avoid being taken advantage of when taking out a new purchase mortgage or refinancing your existing loan.

Tip Number One: Beware Bank Originated Mortgage Loans

Many people think banks and credit unions are the best places to shop for interest rates. While this can be true for savings accounts and CDs, taking out a mortgage from your bank or credit union is a very bad idea. Banks and credit unions are exempt from the Real Estate Settlement Procedure Act (RESPA) that protects homeowners from abusive lending practices by requiring mortgage lenders to disclose their profit margins and mortgage rate markup. The Banking Lobby spent millions of dollars making sure Congress excluded mortgage bankers from this important disclosure legislation; as a result your bank does not have to play by the same rules as other mortgage lenders.

Banks Charge Service Release Premium

Banks make the majority of their profit by selling mortgage loans to investors on the secondary mortgage market. Banks make the majority of this profit by charging above market mortgage rates. Your bank knows the mortgage rate you would qualify in the wholesale market; however, banks set their own rates to include the markup known as Service Release Premium. Because banks are exempt from RESPA they will never tell you how much they’ve marked up your mortgage interest rate. In fact, bank employees will often show you their rate sheets and swear their rates are not marked up. Only by comparing the bank rate sheet to the par rates charged by wholesale lenders can you see the bank’s markup. Why would you ever consider taking out a mortgage from someone that doesn’t have to play by the rules?

Tip Number Two: Mortgage Brokers Charge Yield Spread Premium

We’ve already established that mortgage bankers are evil, but what about mortgage brokers? Like your bank, mortgage brokers make the majority of their profit by marking up your mortgage interest rate. This markup of your mortgage rate is called Yield Spread Premium and is responsible for the sleazy pressure sales tactics used by mortgage brokers today. Mortgage brokers charge Yield Spread Premium because the lender pays them a bonus of one percent of your loan amount for every quarter percent they mark up your rate. Most brokers do this without telling you.

Mortgage brokers have clever ways of disguising their markup on the HUD-1 settlement statement and often leave it off the Good Faith Estimate altogether. When questioned about Yield Spread Premium many brokers become defensive, even angry, telling you that because this fee is paid by the lender and that you shouldn’t worry about it. What you should worry about is why this fee is being paid by the lender. The fee is paid because you are accepting an above market interest rate that could raise your payment hundreds of dollars each month unnecessarily. Did you know the Secretary of Housing and Urban development was recently quoted saying that homeowners overpay nearly sixteen billion dollars annually because of this markup?

How to Avoid Paying Yield Spread Premium

By avoiding this unnecessary markup of your mortgage interest rate you can refinance with a wholesale mortgage rate. Start by asking your mortgage broker what the “par” rate is and ask to see the rate sheet from the wholesale lender. Make sure the rate sheet you see is from the wholesale lender and not typed up on your mortgage broker’s company letterhead. Tell your broker that you understand how Yield Spread Premium works and will not tolerate the markup or any kind of “lender paid compensation” on your loan. It’s usually best to negotiate with a self-employed mortgage broker that owns their business as brokers working for large firms often lack the authority to make a deal like this.

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