Bank of America is currently testing a “no fee” mortgage in Washington State in an attempt to boost the sales of their mortgage products. Should you consider a no-fee mortgage like the one offered by Bank of America? Here’s the problem with taking out a mortgage loan from your Bank. Banks are exempt from the Real Estate Settlement Procedure Act (RESPA) that protects homeowners from abusive lending practices. The banking lobby spent millions of dollars to be excluded from disclosure legislation, and when RESPA became law, the banks were exempt.
Because banks are exempt from RESPA laws, you’ll never know how much the bank has marked up your mortgage rate. Bank of America is testing a “no fee” mortgage that does not require you to pay an appraisal fee, credit reports, and certain other costs they claim add up to $2,800. Bank of America does this to distract homeowners from what they’re doing with the mortgage interest rate. What is this slight of hand covering up? Banks routinely charge borrowers “Service Release Premium” on their mortgage interest rates.
What is “Service Release Premium?” Banks differ from other mortgage lenders because they fund mortgages with the bank’s money instead of reselling loans from a wholesale mortgage lender. When you apply for a mortgage from Bank of America, the bank knows the interest rate you would qualify from a wholesale lender; however, they mark your interest rate up for a profit when the Bank sells your mortgage on the secondary market. This markup of your mortgage interest rate by the bank is called Service Release Premium. Because Banks like Bank of America is exempt from the Real Estate Settlement Procedures Act, the only ones that know how much they’re overcharging homeowners are the banks.
Disclosure laws exist to protect homeowners from abusive lending practices. Why would you want to take out a mortgage loan from a lender that doesn’t have to play by the rules? You can learn more about your mortgage options, including costly mistakes to avoid by registering for a 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.
Hello,
I happened to find your web site today and frankly after reading it I am scared to refinance now. SO having said that can you tell me do you recommend anyone for a VA Streamline Refi? We are with Wells Fargo now, but that is because our local bank sold our mortgage to them. Now they are trying to entice us for a lower rate and frankly it looks good. Since we are planning on moving in a year renting out house is a good option so we thought we would take an ARM for 5-7 yrs with Wells fargo, but now I am not sure that is good. Who is good to refi with? Do you have to sort of shoot in the dark?