Home Mortgage Refinancing Guide

You’ve probably been hearing about the credit crisis in the mortgage industry recently and a number of people have been asking me what’s really happening. While it’s true the meltdown of the sub-prime or bad credit mortgage industry is affecting conventional mortgage lenders, the impact is not as bad as the gloom and doom you’re hearing in the news.

Who is the credit crisis affecting?

Homeowners that purchased their homes with loans not appropriate for their needs or financial situation and those with bad credit are feeling pinched by the crisis. This includes homeowners that purchased their homes with risky interest-only and option Adjustable Rate Mortgages (ARM) that are scheduled soon to reset. Many of these homeowners used these risky loans because they have low credit scores or are unable to sufficiently document their income and assets for a conventional mortgage loan. Homeowners with credit scores that are lower than 620 in need of jumbo or stated income loans will find getting approved very difficult if not impossible in the current climate.

Who is the crisis not affecting?

Homeowners with good credit in need of conforming mortgage loans (loans less than the $417,000 limit set by Fannie Mae) are not going to have any trouble refinancing their mortgage loans. The Federal Reserve recently lowered short term interest rates because of the crisis and mortgage rates are still very low. If you are in need of a stated income mortgage loans these loans are gradually becoming available; however, you will need to meet the credit/asset guidelines in order to qualify.

Mortgage brokers and lenders are feeling the pinch and should be eager to make deals; you will need to be careful to avoid junk fees and the unnecessary markup of your mortgage interest rate known as Yield Spread Premium.

Beware Junk Fees and Retail Markup

There are a number of junk fees listed on your Good Faith Estimate and HUD-1 statement you need to avoid when refinancing. Anything you find on these documents that resembles an application fee, lock fee, processing fee, or a courier fee is a garbage fee you should simply refuse to pay. The interest rate you are quoted when applying for a mortgage is typically a retail mortgage rate that includes your mortgage broker’s markup. This markup of your mortgage interest rate serves no purpose other than to give your mortgage broker a commission. Because you’re already paying an origination fee for your mortgage broker’s services this markup often doubles or triples your broker’s commission.

When questioning mortgage brokers about this markup known as Yield Spread Premium many brokers become defensive even angry. Your mortgage broker might tell you not to worry about this fee because it’s coming from the lender’s pocket; however, the reason the lender pays this fee is because you’re agreeing to pay a higher mortgage rate than you need to. You can learn more about avoiding Yield Spread Premium and other junk fees when refinancing your mortgage by registering for this free mortgage toolkit.

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.

Yield Spread Premium or YSP is the best kept and most scandalous mortgage secret you’ll encounter as a homeowner. YSP is the premium that your lender pays to the mortgage broker for selling you a higher than necessary mortgage interest rate. The more you overpay when refinancing your mortgage, the higher your broker’s kickback from the lender will be.

Par Mortgage Rates

The wholesale mortgage rate you qualified when applying for your loan is known as the “par” rate. Premium or retail mortgage rates include the broker’s markup; here’s an example to illustrate how YSP works. Suppose in this example that you are refinancing your mortgage for $200,000. There are two mortgage rates associated with your new loan: 6.0% and 6.25%.

YSP is paid for by the lender in fixed increments. In this case the par amount you qualified (which your broker will not tell you) is 6.0%. The Yield Spread Premium for this example is .25%. For every .25% you agree to overpay the broker receives a commission of one percent of your mortgage amount. In this example the broker pockets $2,000 because you agreed to pay an above market interest rate.

Most mortgage brokers conveniently omit Yield Spread Premium from the Good Faith Estimate when providing you a quote. If your mortgage is being funded by a wholesale lender and not a bank, this markup of your mortgage interest rate will be disclosed on the HUD-1 statement. YSP can be found on lines 810-811 of the HUD-1 statement.

Avoid Banks and Correspondent Lenders

Banks and Correspondent lenders fund their mortgage loans in the name of their own companies and are not required to disclose this markup due to a loophole in the Real Estate Settlement Procedures Act. The markup by the bank or correspondent lender goes by a different name and is called Service Release Premium. Service Release Premium will not be listed on your Good Faith Estimate or HUD-1 Statement. If you refinance your mortgage with a bank or correspondent lender like E-Loan you’ll never know how much they’ve marked up the par mortgage rate you could have qualified for.

You can learn more about your mortgage refinancing options, including costly mistakes to avoid by registering for my free mortgage refinancing video tutorial. Register today with no obligation by clicking the DVD image at the top of this page.

Unless you’ve been living under a rock you’ve probably heard about the recent credit crisis in the United States. Spurned by the collapse of the sub-prime or bad credit mortgage industry, and depending on which news channel you’ve been watching, you might have heard that there is no money for mortgage loans, that credit card companies are cutting people off, and oh yes…forget about that car loan. While it’s true that the sub-prime mortgage industry has imploded and that bad credit lenders are filing for bankruptcy right and left, regrettably laying people off, the homeowners affected by this crisis are mainly those with poor credit.

You may have also heard that European investors downgraded the credit ratings of US mortgage companies making it more difficult for these companies to fund their loans. Again, the companies affected here are sub-prime mortgage lenders. While it’s true that Europeans perceive Americans as fat, stupid, gun-toting criminals that don’t pay their bills (just ask Jeremy Clarkson, host of Top Gear…he’ll tell you) the majority of what you’re hearing in the news can be attributed to these sub-prime mortgage lenders that you see dropping like flies. Americans are certainly not stupid and most of us do pay our bills on time. As for the rest…well, I digress.

The mortgage industry is still alive and kicking in the United States; if you are a homeowner with good credit in need of a mortgage you can find the funding you need. Mortgage lenders as a rule are greedy bastards, so you can expect to see them exploit this “crisis” to make a buck. Headline News reported this morning that mortgage lenders are raising interest rates and imposing “strict” loan terms to “keep pace with the current economic environment.” This is corporate speak for taking advantage of people to make a buck.

This “credit crisis” or shall we say excuse for raising mortgage rates and imposing unfavorable loan terms on the hard-working American homeowner, is why doing your homework and comparison shopping is critical if you are in the market for a new loan or to refinance your existing mortgage. Again, if you have poor credit or a jumbo mortgage you’ll probably have to wait for blue skies to come again; however, if you have good credit and a chunk of equity in your home, refinancing with good rates and loan conditions is still possible.

Yield Spread Premium hasn’t gone away and lenders will still try and sell you an outrageous mortgage to improve their bottom line. This can be avoided by learning how to recognize their greedy bag of tricks, starting with the unnecessary markup of your mortgage interest rate. You can learn more about refinancing your mortgage without being taken advantage of with my video toolkit. For free access to the videos, training materials, and support staff click on the DVD image you see at the top of this page. There is no obligation to you now or in the future…really, no strings attached.

No fee mortgage refinancing sounds like a great deal; however, as most homeowners quickly learn, there are no free lunches when it comes to your mortgage loans. Most of the so called “no fee” mortgages you see advertised simply trade off a higher mortgage rate for the lender’s share of closing costs. Every mortgage has fees, the difference is you can choose to pay these fees now or keep paying them for the entire duration of your loan.

There are several circumstances where no fee mortgage refinancing can be used to your advantage. You can use Yield Spread Premium (YSP) to pay your fees if you’re in a pinch and need to refinance. This is an expensive way of paying your closing costs and may not work in every situation; however, if it helps you save your home from a risky adjustable rate mortgage the tradeoff will be worth it.

If you’re not already familiar with Yield Spread Premium it is the markup your mortgage broker adds to your interest rate to get a commission from the lender. When a wholesale lender approves your mortgage you qualify for a specific mortgage rate. Your broker knows this rate but most will quote you a higher interest rate without telling you what you’ve qualified, pocketing the commission from the lender at your expense.

An honest mortgage broker has the ability to structure your loan where the commission from the lender is used to pay your closing costs. Sure, you’re accepting an above market interest rate; however, for every .25% you agree to pay above the mortgage rate you qualified the broker gets 1% of the loan amount back. You’ll have to pay the broker an origination fee for their services; however, Yield Spread Premium can be used to pay your refinancing expenses. Here’s an example of how Yield Spread Premium can be leveraged to your advantage.

Suppose you qualify for a 6.0% mortgage rate when refinancing your loan from the wholesale lender. If you agree to pay 6.75% your broker will receive a commission of 3% of your mortgage amount. On a $200,000 mortgage the Yield Spread Premium in this example provides $6,000 which is more than enough to cover your closing costs. This assumes you’re working with an honest mortgage broker that agrees to let you use this money to pay your closing costs.

You can learn more about your mortgage refinancing options, including costly pitfalls to avoid with my free mortgage toolkit; register today, the video tutorial is yours free with no obligation.