What are mortgage bankers? You hear the term a lot but what’s the actual difference between a mortgage banker and a lender? Simply put, mortgage banks are retail loan originators that fund loans with their own cash. A mortgage broker resells loans for wholesale lenders but the mortgage bank cuts out the middleman, dealing directly with the public.
Cutting out the broker is a good thing right? Mortgage banks like Countrywide or Wells Fargo Mortgage must have the best deals because they deal directly with the public. Guess again…both Countrywide and Wells Fargo are at the top of the list of Predatory lenders in the United States.
Mortgage banks like Countrywide Home loans do not have to disclose their markup or profit margins due to a loophole in the Real Estate Settlement Procedures Act. This law, also known as RESPA, requires mortgage brokers to disclose the amount of Yield Spread Premium associated with your mortgage loan. Yield Spread Premium is a percentage of your loan amount created when the broker locks and closes your loan with an above market interest rate.
Mortgage banks do the same thing by charging you an above market mortgage rate; however, since they fund your loan with their own funds the profit they generate by inflating your interest rate is called Service Release Premium. Countrywide does this and pockets the cash from your higher mortgage rate by selling the loan to investors on the secondary mortgage market.
Because Countrywide Home Loans is exempt from the Real Estate Settlement Procedures Act they will never tell you how much they profited by overcharging you.
Here’s a tip if you are considering refinancing your mortgage with Countrywide. That $349 fee they charge for locking in your mortgage rate is complete garbage.
Wholesale lenders do not charge a fee for locking in your mortgage rate. It is in fact possible to refinance your home with a wholesale mortgage rate if you find the right broker to arrange your loan. There are brokers out there willing to work for a one percent origination fee without taking Yield Spread Premium on your loan.
This allows you to get as close to a “par” or wholesale mortgage rate as possible. Par is a term used to describe mortgage rates that have not been marked up with Yield Spread Premium or one that requires you to pay points to qualify for that rate.
You can learn more about mortgage refinancing with a wholesale mortgage rate by registering for the free videos available on this website.
My name is Rob Regehr and I’m a personal finance writer with a chip on my shoulder for banks and brokers that take advantage of my friends and neighbors.
