Home Mortgage Refinancing Guide

If you’re refinancing your home loan in the State of California and are looking for a wholesale mortgage lender, there are several things you need to know about wholesale interest rates. Most homeowners do not understand how mortgage rates are quoted and overpay thousands of dollars every time they take out a home loan. Here are several tips to help you find a California wholesale lender without paying markup and unnecessary junk fees.

How Are Mortgage Rates Quoted?

In order to accurately quote a mortgage rate the lender needs to have sixteen factors of financial information from you. If you receive rate quotes without providing detailed financial information I can tell you whoever gave you the quote has no intention of honoring it. This is a common tactic of shady mortgage brokers practicing bait-and-switch scams. They’ll promise you the moon and when the deal falls through they switch you to a more expensive mortgage loan that brings them the largest commission.

Once you provide your financial details and get a quote you should know that you have a “retail” mortgage rate quote. Mortgage companies and brokers that deal with the public quote rates that include commission based markup. You might think that going directly to a wholesale lender will cut out the middleman and get you wholesale interest rates; however, these wholesale lenders all have retail divisions that deal with the public and only offer their best rates to mortgage companies and brokers.

What is Commission Based Markup?

When you take out a home loan from a mortgage broker you will pay an origination fee for the broker’s services. This fee ranges from less than one percent to as much as three or four percent. (One percent is a reasonable amount to pay the broker…any more and you’re being taken advantage of) The problem with commission based markup is that you’re already paying for the broker’s work. What your mortgage broker isn’t going to tell you (and frequently becomes angry or defensive if you question him or her about it) is that they are marking up your interest rate to get a kickback from the lender.

See wholesale lenders know that mortgages that have above market interest rates bring them huge profits when they sell your home loan to investors, so they reward mortgage companies and brokers for closing loans with above market rates. The higher your mortgage rate the higher the reward for the person closing your home loan. What does this mean for you? A higher mortgage rate means higher monthly payments and money that you’re throwing away on unnecessary finance charges. You’re already paying the broker for their services; on top of your fee they’re helping themselves to your money in the form of a higher mortgage rate.

This commission based markup of your mortgage rate is called Yield Spread Premium and will easily double, often triple the compensation your mortgage broker receives for your loan. Sounds sleazy right? Here’s an example to show you just how sleazy Yield Spread Premium is. Suppose you are refinancing a $300,000 home loan at 6.5% and the mortgage broker charges you 1.5% for loan origination. That means you have to come up with $4,500 at closing to pay the mortgage broker. What you’re broker isn’t telling you is that you actually qualified for 6.0% from the lender and that they’ve marked it up because the lender pays them 1% of your loan amount for every .25% you overpay.

In this example the broker receives an additional 2% or $6,000 on top of the $4,500 you’re already paying for their services. That’s $10,500 for a few hours work and you get stuck paying an above market interest rate.

Finding California Wholesale Lenders

The good news for you today if you’re refinancing in California or any other State for that matter, is that there are ways to refinance your home without paying Yield Spread Premium. (Or lender junk fees) You can find honest mortgage brokers willing to work for reasonable origination fees if you know how to shop for a mortgage loan.

You can learn more about comparison shopping for California Wholesale Lenders when refinancing and avoiding unnecessary garbage fees by registering for a free mortgage video tutorial. Register today; the videos are free and can save you thousands of dollars on your next mortgage loan.

Your monthly mortgage payment amount is determined by the amount you borrowed and the mortgage you qualified. Mortgage rates are currently at their lowest levels since 2005; if your financial situation has changed since you purchased your home you could significantly lower your payment with a lower mortgage rate. Here are several tips to help you decide if this is the right time to refinance your home loan.

Wholesale Mortgages Rates

If you are a homeowner with good credit the current wholesale mortgage rate is 5.5 percent. Refinancing your mortgage with wholesale rates can be tricky as most homeowners don’t understand how mortgage rates are quoted. The rate quotes your receive online and from your mortgage broker are actually “retail” mortgage rates and can be as much as a half percent to a full percent higher than the going wholesale rate.

What Makes Mortgage Rates Retail?

Mortgage brokers are basically commission based salespeople. Your broker is compensated for their work in two ways; you will pay an origination fee for their services and the lender pays a “rebate” to the broker for closing your loan. A reasonable fee to pay for loan origination is one point, or one percent of your loan amount. If you can get away paying less than one percent you’re doing well, but what about the broker rebate paid by the lender? Should you be concerned about this fee since it’s not coming out of your pocket?

The short answer is yes. You should be very concerned about this fee not because the lender is paying it, but why the lender is paying. Broker rebates are paid for one reason and one reason only. This rebate is a reward for closing loans with above market mortgage rates. That’s right; your mortgage broker receives a bonus form the lender for overcharging you. In the industry this “reward” is called Yield Spread Premium and could wind up costing you thousands of dollars in unnecessary finance charges.

The Mortgage Industry Has a Dirty Little Secret…

Here’s an example to illustrate how the broker rebate works. Suppose you refinance your home for $300,000 and your broker tells you that you qualify for a 6 percent mortgage rate. You agree to pay one point for loan origination which is a perfectly reasonable fee to pay the mortgage broker. This fee amounts to $3,000 paid out of your pocket at closing. But what is your mortgage broker not telling you?

Today’s wholesale mortgage rate is 5.5%. If you agree to a 6.0% mortgage rate that means the loan has .5% Yield Spread Premium. Mortgage lenders pay one point for every quarter percent the broker overcharges you. In this example the broker receives an additional $6,000 on top of the $3,000 you’re already paying. That’s $9,000 for a few hours work and that’s only half the problem.

The real stink of Yield Spread Premium comes form the fact the most brokers will never admit what they’re doing with your mortgage rate and never properly disclose this fee. Most mortgage brokers leave it off the Good Faith Estimate entirety, give you a bogus rate lock confirmation instead of the one from your lender and if you happen to catch the rebate on your HUD-1 statement explain the fee away by saying “It’s not coming out of your pocket, don’t worry about it.

What’s Wrong With Yield Spread Premium?

By accepting an above market mortgage rate your payments will be higher than they need be and you’ll be wasting money on unnecessary finance charges. Because this fee is never properly disclosed your mortgage broker is all but lying to you about the loan and taking money out of your pocket. Is this the mortgage you thought you were getting when the broker quoted you a six percent interest rate?

The good news is that you can avoid mortgage broker rebates when refinancing. There are honest mortgage brokers out there that will work for the origination fee alone without marking up your mortgage rate; you just have to find one. A good place to start is the Upfront Mortgage Brokers Association; members of this association agree to conduct their business following certain ethical and professional standards. Not every State has members however; if your State does not you can still find honest mortgage brokers by doing your homework and shopping for the right broker.

You can learn more about refinancing your mortgage with a wholesale mortgage rate by registering for a free DVD. Register today, this mortgage DVD is yours free with no obligation.

If you are in the market for a new mortgage either to purchase your home or refinance an existing loan, you might wonder if a wholesale lender could save you money. Most homeowners in the United States do not understand how the mortgage markets work and are unable to take advantage of wholesale rates even if they contact a wholesale lender directly. Homeowners who learn how the system works are able to take advantage of the wholesale nature of the market and save thousands of dollars. Here are the basics you need to know in order to take advantage of wholesale mortgage rates with your home loan.

Mortgage Market Basics

There are two markets in the United States for mortgage loans. The primary mortgage market is where consumers like you and I take out loans to purchase homes. The secondary market is where institutions and other investors buy and sell mortgage debt for a profit. The primary market is made up of several types of mortgage lenders, most of which make the majority of their profits by selling mortgage debt on the secondary market.

Types of Mortgage Lenders

The basic types of mortgage lenders you will encounter in the primary market include wholesale lenders, banks and credit unions and ”broker-banks” known as correspondent lenders. I don’t recommend taking out a mortgage from your bank, credit union, or a broker-bank such as E-Loan because these lenders are exempt from the Real Estate Settlement Procedures Act thanks to a loophole courtesy of the Banking Lobby. Because these lenders are not legally required to play by the same rules as other mortgage lenders you’ll never know how much they’ve marked up your mortgage interest rate. Besides, why would you want to do business with a lender that isn’t required to play by the rules?

This article is about wholesale mortgage lenders, which now that we’ve eliminated banks and broker-banks are all we’re left with. What are wholesale lenders? Wholesale lenders are institutions that sell loans on the secondary market for a profit. As members of the public, you and I cannot deal with a wholesale lender directly. Even if you were to contact one of these lenders you’ll be dealing with a retail division of that lender and you will not get a wholesale rate. How can you get a wholesale mortgage rate? Glad you asked…

Mortgage Brokers Have Access to Wholesale Rates

If you want to take advantage of wholesale mortgage rates you’ll need to enlist the help of a mortgage broker…and not just any broker, you need to find one willing to work for an origination fee without charging you Yield Spread Premium. Finding a mortgage broker like this is not an easy task. Yield Spread Premium frequently doubles often triples the compensation mortgage brokers receive on your loan.

What is Yield Spread Premium?

Yield Spread Premium is simply the difference between the wholesale rate the lender approves you and the rate your mortgage broker “sells” you. This markup of your mortgage rate is what makes your loan “retail.” Mortgage brokers do this because the wholesale lender pays them a bonus for closing mortgage loans with above market interest rates. In fact your mortgage broker receives a commission of one percent of your mortgage amount for every .25% they con you into overpaying. I use the word “con” because most brokers conveniently omit this markup from your Good Faith Estimate and have ways of cleverly disguising it on the HUD-1 statement.

Many mortgage brokers get defensive, even angry when questioned about Yield Spread Premium. They’ll tell you that because this fee isn’t coming out of your pocket that you shouldn’t worry about it. What you should be concerned about is the reason that this fee is being paid…your broker gets this commission because you’re agreeing to pay an above market mortgage rate.

This is why finding the right mortgage broker is critical for getting a wholesale mortgage rate. You’ll need to negotiate with potential brokers to pay a reasonable origination fee (not more than one percent) without paying Yield Spread Premium. Start by telling your mortgage broker that you understand how Yield Spread Premium works and will not accept this markup on your loan. If you’d like to receive more advice about wholesale mortgage lenders and taking out a mortgage without paying too much register for this free mortgage refinancing blueprint.