It is important to know who you’re dealing with when refinancing your mortgage loan. Broker-banks are a type of lender that deliberately misleads their borrowers. What is a mortgage Broker-Bank? Banks often operate as mortgage brokers in an attempt to boost their profits; Banks are exempt from disclosure laws in the United States that protect homeowners from abusive lending practices. Broker-banks exist to make a homeowner think their dealing with a mortgage broker when they’re really borrowing from a bank.
E-Loan is an example of a Broker Bank operating on the Internet. When you visit their website, the first thing that stands out when looking for the fine print is that they don’t have any. There is no disclosure statement anywhere to be found on their website. Because E-loan is a Bank, they are exempt from the Real Estate Settlement Procedures Act and do not have to disclose their profit margin on your loan. Should you refinance your mortgage with a lender that doesn’t have to play by the rules?
E-loan isn’t the only Broker-Bank out there. How can you tell if a mortgage broker you are considering for mortgage refinancing is actually a Broker-Bank? Ask your loan representative if they close on your new mortgage in their own name. If the answer you get is “yes,” and the mortgage broker closes in the name of their own company and not the wholesale mortgage lender, you know that they are actually a Broker-Bank and exempt from the Real Estate Settlement Procedures Act. To avoid overpaying for your new mortgage you should never refinance with a Bank or Broker-Bank.
The next thing you need to ensure before choosing a mortgage company or broker is that they will not be charging any amount of Yield Spread Premium on your loan. Yield Spread Premium is the unnecessary markup of your mortgage interest rate by your Mortgage Company or broker to make additional profit for originating your loan. Tell your loan representative you will not pay this markup and ask to see the rate lock from the wholesale mortgage lender. You can compare this rate to the interest rate guarantee provided to you by your loan representative. If your mortgage interest rate is higher than the wholesale rate you know the loan representative marked up your mortgage interest rate.
You can learn more about your mortgage refinancing options, including costly mistakes such as choosing a lender like E-Loan with our free, six-part video tutorial.
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.
