Should Banks do Mortgages?

Are you considering refinancing your home mortgage loan with your bank or credit union?

There are several good reasons for considering taking out a new mortgage loan from your bank; however, there is one glaring problem with bank originated mortgage loans. Should banks do mortgages?

The following discussion about your bank’s dirty little secret could save you thousands of dollars on your next mortgage loan.

Should Banks do Mortgages?

What could be more convenient than making an online transfer from your checking account to your mortgage loan? Click, click…done. If you’re at that stage in your relationship with your bank and your mortgage loan you’ve probably already paid too much. Here’s why.

Real Estate Settlement Procedures Act

Also known as RESPA, the Real Estate Settlement Procedures Act is a very important bit of legislation that protects homeowners in the United States from predatory lending practices. Except for one not so small problem: the Banking Lobby spent millions of dollars lobbying Congress to have the laws changed so that your banks and credit unions are exempt from having to disclose their markup and profit margins from your home loan…and they pulled it off.

Service Release Premium

If you’ve spent any amount of time reading the mortgage articles on this site or watching the underground mortgage videos available on this website, you’re already familiar with Yield Spread Premium. For the uninitiated, Yield Spread Premium is a kickback that lenders pay to your mortgage broker for locking and closing your mortgage loan with a higher than necessary mortgage rate. Think of it as a commission paid to your mortgage broker for overcharging you.

Banks don’t use mortgage brokers to originate their home loans because they fund their loans with the banks money, cutting out the middleman so to speak. This is a good thing right? No mortgage broker, no Yield Spread Premium right? Not exactly. ..

Banks don’t offer wholesale mortgage rates to their customers, but they know what rates are available from wholesale lenders including what mortgage rate you could get from their competitors; however, the bank charges you mortgage rates based on what profit they want to make selling your loan on the secondary market. This markup of what you could have had and what you got creates Service Release Premium, or a premium profit for the bank.

The bank will never tell you what they’re doing with your mortgage rate because they’re not legally required to disclose any of this about your loan. Remember that loophole in the Real Estate Settlement Procedures Act? In a nutshell, this is why you should never refinance your home mortgage with your bank.

Mortgage Broker Banks

The successful lobbying of Congress to have banks excluded from RESPA legislation created a new kind of “direct lender.” Many mortgage brokers saw what the banks had accomplished for themselves and greedily decided they wanted in on the action. These brokers created a new kind of lender known as a “broker bank.” Instead of reselling loans from wholesale lenders these broker banks funded loans with their own cash and were therefore able to take advantage of the same loophole as your bank. You’ll see advertisements now and then for “direct lenders” that cut out the middleman when refinancing your mortgage.

Don’t be fooled by this bravado; the only reason for a mortgage broker to operate a business in this manner is to take advantage of their customers by exploiting this loophole in disclosure laws that are supposed to be protecting you from predatory lending practices.

How to Spot a Mortgage Broker Bank

How can you tell if the person you’re dealing with is operating as a broker bank? Ask them if they close in the name of their own company or the wholesale lender when refinancing your mortgage. If the answer is that they close in their own company’s name then you know that you’re dealing with a mortgage broker bank and would be better off finding someone else to refinance your home.

You can learn more about refinancing your mortgage with the right lender without paying this unnecessary markup of your mortgage rate or lender junk fees by registering for my Underground Mortgage Videos. Register today and you’ll be on your way to saving thousands of dollars on your next home mortgage loan.

Refinancing Banks

You might be considering refinancing your home mortgage loan with your bank or credit union to take advantage of today’s low interest rates. After all, what could be more convenient than simply transferring your mortgage payment out of your checking account?

Are bank originated mortgage loans really the best deal for your home mortgage? Here are several tips to help you avoid making an expensive mistake refinancing your home loan.

Refinancing Banks & Your Mortgage Loan

Banks and credit unions love to brag about their mortgage loans. Bank of America for example loves to flaunt its “no fee” mortgage loans… but are they really a good deal? I’d say be sure and read the fine print before taking out a loan from your bank or credit union; however, thanks to the banking lobby there is no fine print for you to read. What do mean by this? Allow me to explain…

The Real Estate Settlement Procedures Act

Also abbreviated RESPA, this is the legislation that required mortgage lenders to disclose their fees and markup. Note that I said “required” as the Banking Lobby spent millions of dollars lobbying congress to change this disclosure legislation to exclude banks…successfully. That’s right, your bank and credit union is exempt from RESPA laws that require fair and honest lending practices in the United States. Banks are simply not required to disclose their markup or profit margins on your mortgage loan.

Service Release Premium

Big deal you might be thinking, bank mortgage rates have to be good to compete with other lenders right? Nope…your bank doesn’t care about being competitive, and most homeowners don’t know the first thing about mortgage rates to understand how banks are making their money.

So how exactly do banks make money from mortgage loans? They just sit back and collect interest from my mortgage payments right? Wrong!

Banks make the majority of their profits selling loans to investors on the secondary mortgage market. The higher the interest rate on your loan the more profit the banks make when your loan is sold. This is why the bank will try and close your loan with the highest mortgage rate possible. Banks know what mortgage rate you could get in the open market from a mortgage broker; however, they mark this rate up create a profit when your loan is sold. This markup of your mortgage rate by the bank is known as Service Release Premium.

Does Service Release Premium Really Matter?

How much could your bank really markup up your mortgage rate and does it really make a difference? Well, suppose you refinance your home for $300,000 with a 30 year fixed rate loan at 5.5%. What you didn’t know is that you could have had a 5.0% mortgage rate from a wholesale lender. What does this markup by the refinancing bank mean for your mortgage payment?

At 5.5% on a $300,000 mortgage your monthly payment will be $1700 per month. If you had the mortgage rate you deserve at 5.0% your monthly payment would only be $1610 per month. That’s $1080 per year you’re flushing down the toilet just to boost your bank’s profits.

How to Get a Wholesale Mortgage Rate

You don’t have to be a financial guru to refinance your mortgage with a wholesale mortgage rate. First of all you should avoid refinancing banks and credit unions no matter how convincing the salesperson or your neighbor Bob. Secondly, you need to find the right person to arrange your new mortgage. This person needs to be a mortgage broker, but not just any broker. Mortgage brokers, like banks, mark up mortgage rates for a commission so you’ll need to find the right broker for the job.

It is possible to refinance your home loan with a wholesale mortgage rate and pay only a 1.0% origination fee to the mortgage broker for arranging the loan. You can learn how to do this for yourself while avoiding costly lender junk fees by checking out my free mortgage videos on this website.

Check out my Underground Mortgage Refinancing Videos today and you’ll get immediate access to videos that save the average homeowner $1,000 per year… Guaranteed!

Wishing you success with your next home mortgage,

Robert Regehr

Wells Fargo Mortgage Review Part 1

Wells Fargo Mortgage is a division of Wells Fargo Bank, one of the largest banks created following a merger with Norwest bank and is currently the second largest mortgage lender behind Countrywide home loans.

Are you considering refinancing with Wells Fargo Mortgage or do you already have a mortgage from Wells Fargo?

Here are several tips you need to know about bank originated mortgage loans to avoid paying too much for your home loan.

Wells Fargo mortgage has earned a reputation similar to Countrywide as a predatory lender. They hook their customers with a free checking account and then sock it to with ridiculous fees and overpriced mortgage and investment accounts. Consumer watch groups like ACORN are constantly charging Wells Fargo with predatory lending especially with their home loans targeted to people with poor credit and home equity loan offerings.

Wells Fargo has even had their home office picketed on several occasions by consumer activists. As a former Wells Fargo Customer I can tell you that I recently switched my checking account to Bank of America and have never been happier. For checking and savings accounts you can’t beat B of A’s free accounts. But what about mortgage loans?

What’s Wrong With Bank Originated Mortgage Loans?

There’s plenty wrong with bank mortgage loans that your banker isn’t telling you. The biggest issue you need to be aware of is called Service Release Premium. Simply put this bank premium is the difference between the mortgage rate you could have had and the one the bank gives you. There are two types of mortgage rates out there today…wholesale rates offered by wholesale lenders and mortgage rates that have been marked up by banks and other mortgage companies for profit.

Another important distinction about banks…they aren’t legally required to play by the same rulebook as other mortgage companies and brokers. Banks are exempt from a very important law that protects homeowners from predatory lending practices called the Real Estate Settlement Procedures Act (RESPA). The Banking Lobby spent millions of dollars bribing your elected officials (after all, that’s how Washington works now) to have the disclosure laws changed so that banks are not required to disclose their profit margin or markup on your loan. Mortgage brokers are now required to disclose their markup known as Yield Spread Premium on the Good Faith Estimate and HUD-1 Statement; however, banks are not required to comply with the same law.

With this in mind why would you even consider taking out a mortgage from a company that doesn’t have to play the rules? It’s not just Wells Fargo that uses this unfair practice to exploit homeowners; it’s every bank and credit union out there. Banks do this because they make the majority of their profit by selling their mortgage loans to investors. The bank knows that loans with above market interest rates bring them the most profits and this is how they run their businesses.

If you’re not yet convinced that bank originated mortgage loans are not the way to go, try comparing true wholesale rates offered by an honest mortgage broker to the rate sheets offered by your bank and you’ll see that Wells Fargo Mortgage is not the way to go when refinancing your home loan. If you’d like to learn more about refinancing your mortgage with a wholesale rate and finding an honest broker to help you, check out my Underground Mortgage Videos.

My free Underground Mortgage Refinancing Videos save the average homeowner $1,200 per year. Seriously, couldn’t you use that money back in your family’s budget every month?

No Fee Mortgages

mortgage broker compensation No Fee MortgagesNo fee mortgage refinancing simply doesn’t exist. You’ll see advertisers on television like Bank of America bragging about their no cost, no fee mortgages; however, no cost mortgage refinancing is a lie. Here is the truth you need to know about no fee mortgage refinancing to prevent falling victim to these empty promise of no fee mortgage loans.

Every mortgage loan sold today has closing costs and fees that have to be paid one way or the other. When an advertiser claims that their loans have no fees, they are not telling you the whole story. Mortgage closing costs get paid in one of three ways:

You can pay cash at closing.

You can roll the costs into your loan balance.

You can take a higher mortgage rate instead.

In the case of “no fee” mortgage you see advertised on the radio and television you are taking a higher mortgage rate in exchange for the lender covering your costs. This is also true of the “low flat fee” mortgages you see advertised by companies like Ditech. There are always closing costs including those paid to third party companies when taking out a mortgage. When you fall for one of these “no fee” mortgage loans your lender is locking your mortgage rate high enough to pay your closing costs.

You might be asking how a higher mortgage rate could cover your closing costs. The reason this happens is what’s known as the mortgage industries dirty little secret. Yield Spread Premium is the industry term for the fee wholesale lenders pay for closing loans with above market mortgage rates. The higher mortgage rate you agree to pay when refinancing, the more profit your lender makes when the loan is sold to investors on the secondary market. This is why lenders pay a commission to loan originators for closing loans with above market rates.

Lenders that you see advertising “no fee” mortgage loans are simply using this fee to pay your closing costs. Banks do the same thing as other mortgage lenders they just give it a different name. You are simply agreeing to a higher mortgage rate which results in a higher payment amount every month that you keep the loan to avoid paying closing costs. What’s wrong with using Yield Spread Premium to pay closing costs?

Yield Spread Premium Can Be Avoided

This markup of your mortgage interest rate is not only completely unnecessary, but is dishonest. It is possible to pay a reasonable fee for loan origination and refinance your mortgage with a wholesale rate. A reasonable origination fee to pay is one percent of your mortgage amount and there are honest mortgage brokers willing to work for that. Sure you’ll have to pay closing costs; however, if you plan on keeping your home refinancing with a wholesale mortgage rate can save you thousands of dollars in the long run.

You can learn more about refinancing your mortgage with a wholesale mortgage rate while avoiding broker and lender junk fees with a free mortgage refinancing DVD. Click the DVD image at the top of this page to order your free copy today.

Deceptive Mortgage Advertising: It’s a No Brainer

You’ve probably seen the television ads claiming that no cost mortgage refinancing is “a no brainer.” Advertisers love to claim that they’ll pay your closing costs and offer zero cost refinancing. Most homeowners responding to these offers don’t realize how much of a lie no cost refinancing is. Here is the truth you need to know about the no cost mortgage refinancing lie.

Most homeowners don’t understand how mortgage lenders make their money. The majority of lenders today don’t sit on your loan collecting interest month in and month out. Most lenders make their money by selling loans to investors on the secondary market; the profit they make by selling your loan is called Service Release Premium. The fact that lenders sell your mortgage loan has more to do with you than you think; lenders reward brokers for charging you an above market interest rate to boost their profits when the loan is sold.

Your mortgage broker simply acts as an agent reselling loans for a wholesale lender. Mortgage brokers mark up the interest rate you qualify because the wholesale lender pays them a bonus for every .25% they overcharge you. This means the loan you get is anywhere from 100 to 150 basis points higher than what you could have had. This is why the average homeowner gets a retail rate on their mortgage loan. The interest rate has been marked up to give the broker a bonus.

The problem with this markup is that most brokers do not tell you what their doing and frequently omit what they’re doing on your Good Faith Estimate. Because you’re already paying your mortgage broker a fee for originating your loan any markup of your mortgage interest rate for a commission is not only unnecessary, but is taking advantage of you as a consumer.

In addition to marking up your mortgage interest rate for a profit, many brokers invent fees when processing your loan. These junk fees are often for thinks like “locking in your mortgage rate,” “application fees,” and “courier fees.” Most of these junk fees go straight into your mortgage brokers pocket for no good reason. So what about these companies claiming to offer no fee mortgage loans?

No Fee Mortgage Refinancing is a Lie

The truth is that every mortgage has legitimate fees that must be paid. If the lender is paying these fees upfront they are being paid on the back end in the form of Service Release Premium. When you refinance your mortgage with a “no fee” mortgage you’ll be accepting a much higher mortgage rate meaning that you’ll pay more than you need to for the loan. The lenders know they’ll make up the fees they’ve paid for you and double, even triple their profits when the loan is sold on the secondary market. You’ll be stuck paying hundreds of dollars more each month while the lender makes a handsome profit selling your loan. You can learn more about your refinancing options, including expensive pitfalls to avoid with this free mortgage tutorial.