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Mortgage Brokers Have a Dirty Little Secret

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mortgage markup Mortgage Brokers Have a Dirty Little SecretDid you know your mortgage broker has a dirty little secret? Most professions have a few skeletons in the closet but this one could cost you thousands of dollars every year that you have a home loan unnecessarily.

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In fact, this “secret” is so bad that the Secretary of Housing and Urban development said it will be responsible for fleecing American homeowners out of sixteen billion dollars this year alone. What is it? Read the following mortgage tips to help you avoid paying too much for your next home loan.

Mortgage Brokers Compensation

Mortgage brokers should be paid for their work like anyone else; however, like a used car salesman they have ways of padding their commission at your expense. You can expect any mortgage brokers you work with to charge you an origination fee for their services. This origination fee will be clearly marked on your Good Faith Estimate and HUD-1 statement; however, there is a hidden mortgage broker fee you need to be aware of before refinancing your home mortgage.

Mortgage Brokers Secrets

The second way mortgage brokers get paid for their work is a hidden commission from the lender. This commission will never appear on your Good Faith Estimate and most brokers have clever ways of disguising it on your HUD-1 settlement statement. This secret commission from the mortgage lender is called Yield Spread Premium and if you agree to a mortgage with this hidden markup it can cost you thousands of dollars every year that you keep the loan.

Yield Spread Premium is Hidden Markup

Here’s how Yield Spread Premium works. Suppose you are refinancing your home for $250,000 and the mortgage broker quotes you an interest rate of six percent while charging you a two percent origination fee. On the surface six percent sounds like a good deal, even though the origination fee is double what you should be paying, you agree to the loan. This means you have to pay $5000 to the broker for loan origination, your home gets refinanced and everything went smoothly, right? Wrong… What your mortgage broker isn’t telling you is that you were approved for a mortgage rate of 5.25 percent, but they marked it up to get Yield Spread Premium from the lender.

Yield Spread Premium is a percentage of your loan amount created when mortgage brokers lock and close loans with higher than necessary interest rates. You get stuck with a payment based on an interest rate higher than you deserve just to create a commission for the broker. A commission paid in addition to the loan origination fees your mortgage broker is already probably overcharging you…

Hidden Mortgage Markup

How does this hidden markup of your mortgage rate affect your monthly payment amount? In the previous example Yield Spread Premium adds a hundred dollars a month to the payment for a thirty year fixed rate mortgage. That’s $1200 a year you’re throwing down the drain due to your mortgage broker’s deception! Most mortgage brokers don’t talk about Yield Spread Premium and many become angry and defensive when questioned about the markup. Can you blame them? Yield Spread Premium effectively doubles even triples their compensation on the loan… at your expense of course.

You Can Avoid Overpaying for Your Next Mortgage

You don’t have to be a financial guru to get a good deal on your next home mortgage loan. Tell potential mortgage brokers that you will not accept any loan that includes Yield Spread Premium and that you’re willing to pay a one percent origination fee for their services. There are honest mortgage brokers out there willing to work for a one percent origination fee without marking up your mortgage rate and I can send you a list of them in your area.

There are other mortgage junk fees that you need to keep an eye out for: mortgage broker courier fees and rate lock fees are examples of junk fees you should never agree to pay when refinancing your home loan. Before closing on the new loan make sure you get a copy of the HUD-1 settlement statement and go through it with a fine-toothed comb; don’t rely on the Good Faith Estimate to look for these junk fees as this document is little more than a marketing tool used to lure homeowners into overpriced loans.

What About Bank Mortgage Loans?

Can’t you avoid all of this markup and trickery by mortgage brokers simply by refinancing with a bank mortgage loan? While it’s true that your bank doesn’t charge Yield Spread Premium on their loans because your loan is funded with the bank’s money; however, banks have another kind of markup called Service Release Premium that accomplishes the same thing. Also, your bank doesn’t have to disclose Service Release Premium to you because of a loophole in the Real Estate Settlement Procedures Act. You’ll never get as a good a deal from your bank as you could from an honest mortgage broker that hasn’t included Yield Spread Premium on your loan.

What is a Good Mortgage Rate Anyway?

Refinancing your home loan and dealing with mortgage brokers and lenders can be overwhelming. How do you know a good deal when you spot one? The ideal mortgage rate when refinancing your home is what’s known as a par mortgage rate. “Par Mortgage Rates” are ones that don’t cost you discount points to get or create any commission for the Mortgage Company or broker. You’ll never get a par mortgage rate from any bank or credit union and can only get this from the right mortgage broker.

To learn more about refinancing your home loan with the lowest mortgage rate without junk fees or mortgage broker markup register for my Underground Mortgage Videos. You’ll have immediate online access to the mortgage videos as well as a list of mortgage brokers in your area that do not mark up mortgage rates for a commission without downloading anything to your PC or Mac.

Summary
Article Name
Mortgage Brokers Have a Dirty Little Secret
Description
Did you know your mortgage broker has a dirty little secret? Most professions have a few skeletons in the closet but this one could cost you thousands of dollars every year that you have a home loan unnecessarily.

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{ 11 comments… read them below or add one }

Steve April 6, 2009 at 10:14 pm

This artical is false I am a mortgage banker and I do the same . I work for a large bank and we get paid the same way . The YSP is called service release premium when you work for a bank , basically the same thing and it can increase your profit just like any other business has better profit for certain items . Do all doctors, attornies, food markets, musicians, writers charge the same? What did you get paid for writing the article , free I can understand since it is worthless , but normally a real writer wants to be paid as much as they can get . It is called a free world and capitalism prevails . Your article is much like saying warning , this store actually is in business to earn money off the transaction. Just the a piece of terrible writing . I would hope you post this , and make a retraction to the readers . Thank you

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Robert April 7, 2009 at 1:59 am

Thanks for your comments Steve. The point of this article is to help homeowners get the best possible deal on their mortgage loans. When you buy a car do you want the salesman to get the biggest commission because you overpaid for the car? Same logic with a mortgage from the homeowner's perspective. When you take out a mortgage for your home you want the best deal for yourself and your family…not to drive commission and profits for a banker. That's the whole point of a free market…educated consumers choose the best products and services. Why should banking be any different?

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Tim April 7, 2009 at 6:20 am

Robert –

My first impression, from your article, is that ALL mortgage brokers are crooks! They are all dishonest, hiding a dirty secret! You even implied that they ALL will begin by charging points up front and then add the "hidden" fees on to that. This inclusive description of the broker world really hurts your arguement and creditability. I know for a fact that not ALL brokers operate this way. In fact, the most deceptive mortgage operations that I have witnessed were not from brokers. The truth of the matter is that you can find greed and corruption anywhere. But, you can also find good, honest, caring people, including brokers, as well.

Your implication would suggest that all products should include the hidden markups along with the sales price – otherwise we're getting screwed. As a mortgage broker, myself, I live in that world. My customers know how I get paid and they know points allow for lower rates and visa versa. However, when I buy a heat and air system for my home, a car or even a t-shirt – no one wants to share their profit margin with me and they're not required to – unlike my world. So, I turn into a researcher and a shopper and take responsibility for making educated choices.

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Robert April 7, 2009 at 6:27 am

Hi Tim,

All mortgage brokers are certainly not crooks. The problem comes when you're paying someone an origination fee for arranging your loan and then they take Yield Spread Premium or Service Release Premium in the case of our banker friend without telling you. The markup of the mortgage rate can double, even triple the broker's commission and in most cases without the borrower's knowledge or understanding…they get stuck with a higher than necessary mortgage payment. Avoiding that is the point of this article and the information freely available on this site. It is possible to refinance paying the broker a one percent origination fee and walk away with a par mortgage rate. The broker gets paid and the homeowner gets the best possible deal…everyone wins.

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Linda Stone April 15, 2009 at 6:53 am

You couldn't convince me that all mortgage brokers are not crooks if God himself verified it. I just got screwed on a real estate transaction for the third time because I don't know the mortgage business better than the professionals. My broker did not give me a Good Faith Estimate until the day I signed closing papers. I scrambled for hours to look up all the costs and saw that I was getting the shaft but it was too late to change lenders without losing the house and causing the seller to lose the house he was trying to buy. When confronted, he lowered a couple of the smaller charges but not the biggest one – the rate lock fee of 1.5%. If I ever have to deal with another broker, they're going to think I'm the customer from h311.

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Robert April 15, 2009 at 7:12 am

Hey Linda, sorry to hear about your bad experience. If you're not already familiar with your rescission rights you have three days to change your mind when refinancing and walk away after closing before the loan is funded. It doesn't matter what you signed or agreed to…you have three days to change your mind. That's another one of those facts they would rather you did not know…

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Tim April 15, 2009 at 7:20 am

Linda, that broker is why people think the entire profession is corrupt. I've had bad luck with every Toyota I've purchased, including the service, but I can't say Toyotas are inferior. Anyway, that broker can be reported to your state's governing authority. File a complaint and see what happens. Getting a good faith at closing is a big no-no and you can help the next person by getting this broker off the street. It will probably help you feel better as well.

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michaelp May 21, 2009 at 2:53 pm

Steve:

The article is awesome and on target. not disclosing the extra money you are "making" or really stealing is fraud. It should be stated on the hud form as TBW and other good underwirters advise.

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John November 28, 2011 at 11:39 pm

I am a 100% service connected Vet and I recieved an offer for a refi from BNC National Bank for a 3.875% on a 30 yr fixed VA. Which seemed like a great deal. Closing costs were about $2,000. I was excited and motivated and sent off all my financials. They ordered the wrong appraisal and were under a false assumption that it was a streamline VA refi. By the time they figured out that they were doing the wrong loan, I was pushing my rate lock expiration. They then asked me to pay $1,326.00 to extend my rate and had me pay for another appraisal. I paid for the appraisal and it turned out that they ordered an FHA appraisal instead of a VA. They agreed to pay for the rate lock extension and they ordered and paid for the VA appraisal and we were set to close. I asked them repeatedly if they knew who they were selling the loan to because I wanted to know what company I was going to have to deal with for the next 30 years and I only wanted a reputable company. They repeatedly told me they did not know who it would be until after closing, but that they only dealt with a small group of servicers like chase, wells fargo and bank of america. When the loan docs came for signing I noticed that the company listed was suntrust, (which apparently they know about for two weeks), so I looked up complaints online against thier company. There are tons and tons of them, many unresolved. Also attorney generals had filed against them for padding escrow account charges and foreclosing on people that were making thier payments but refusing to pay the triple charges to escrow that the company was demanding. Not to mention securing forced flood insurance for people that already had it and not removing it even after the people proved that they had adequate coverage. Needless to say, I refused to sign, but BNC is telling me I have no choice not to do business with suntrust if I want my loan to go through and that they are not able to offer my loan to a more reputable outfit. All of these problems are just another indication that the banks don’t really care about people, it is just another way for banks to take advantage of hard working people.

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Ann August 30, 2012 at 4:33 pm

What about the new scam, pre-approval nice low rate with out excellent credit, problem appraisal comes in way below even the county records? Now going on 2 months since we started and our savings are running out. Banker knows our financial and is spinning loan so he can charge a higher rate, as he is trying to put us in a position where we have no other choice! Sad world that cannot come to the aid of honest, hardworking people. We have put over $100,000 into property remodeling and finishing house that was only 80% finished, when we purchased two and a half years ago. An appraisal last year, but refused the bait and switch loan was $50,000 higher and this was before any improvements. All Mortgage Brokers are crooks if you don’t have enough money to walk away, or have other means. Dept of Finance is a joke and no government agency will step up to help prevent or remedy the damage this can cause to our credit. Big brother is as crooked as the Mortgage Broker and the self policing agency that they all belong too, just help protect them. Lawyers cost big bucks and drag things on for years, by then you have already lost everything to this leaches of society. Best to pay cash, never refinance and stay as far away from the Mortgage Brokers as possible. So much for the American Dream!!!!

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Billy Rose November 8, 2012 at 9:34 am

There are so many things wrong with a lot of the methods in the mortgage and real estate business. When having our home built it seemed that everything we asked about was an “upgrade”. We found out by accident, when asking a price from the paving contractor how much it would cost to extend our driveway to match the same size we had requested the realtor to extend it when adding our “upgrades” and he said $450. The realtor charged us $900 for the same size extension that we were inquiring about from the same contractor. She was double-dipping on all upgrades in the development. Another problem I have is the fees that they ask. Why shoud I pay 6% on the sale of a home that sells for $100,000 ($6000 commission) and the same fee for say a $500,000 home ($30,000 commission)? Is there that much more advertising and paperwork that it warrants $24,000 more in commission? How do they think they deserve that much more equity out of my home? I negotiated a 3.5% commission with the realtor who sold our previous home. That saved us about $2,500. I thought there used to be a state law that only one of the parties paid settlement fees? Whatever happened to that? Now they charge both parties.

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