How do I become a good mortgage shopper?

Author: Rob K. Blake | Date: October 23, 2008 | Filed In: Mortgage Answers

Here’s the question…

“My wife and I are in the process of finding a mortgage broker, we’re going to check out the one her brother used. This mortgage broker said that they don’t charge points, so I assume they will make their money from Yield Spread, which is the lender giving her a rebate for boosting up our interest rate. I don’t want to be in the position of paying an extra $30,000 over the life of the loan because the interest rate was inflated by 0.5%

My questions are as follows:

Are there any brokers who don’t use Yield Spread?

Do brokers use Yield Spread to offset closing costs? or is this only with FHA loans?

Should I try and use an ‘upfront mortgage broker’? because I hear that even reputable brokers will rip you off

I would rather pay some origination points, rather than have the broker boost up my interest rate, if I pay these, will they still use Yield Spread?

How do I become a mortgage shopper that gets the best rate and no hidden fees?

thanks

Paul”

My answer:

Paul, becoming a good mortgage shopper is a skill you attain…there is no way around that. But let’s get to answering your specific questions.

Are there any brokers who don’t use Yield Spread? Yes, there are, but you must negotiate it. It comes on a case-by-case basis, not as a policy. Nobody, regardless of how ethical they appear to be, will deliver a zero YSP mortgage without demanding and negotiating it.

Do brokers use Yield Spread to offset closing costs? or is this only with FHA loans? Brokers use yield spread premium and banks use Service Release Premium to increase income first and foremost. If hard costs are also covered that is incidental and means the YSP or SRP is larger in order to do so. Read, “Home Mortgage Advertisers Lie…Especially About Closing Costs“, for more.

BTW: FHA loans also use YSP to increase originator income, but roll the closing costs on top of the loan amount. That is the FHA claim to fame…financing the closing costs into the principal amount of the loan. So when it comes to YSP, FHA loans fit the norm. Just wanted to correct that misperception…

Should I try and use an ‘upfront mortgage broker’? because I hear that even reputable brokers will rip you off. Once again, believing anyone, regardless of how they “bill” themselves, will deliver the best rate with no YSP without you demanding and negotiating it, is false hope. I know of the “Upfront Mortgage Broker” moniker Mr. Jack Guttentag created but even Jack admits he doesn’t oversee his creation for compliance. Many of my readers have emailed me with unfavorable results contacting these folks.

Your instincts are correct in that mortgage originators including Upfront mortgage brokers “test the waters” with each client to see how much they know about the mortgage industry and those shoppers found lacking will get the worst deals. A superior mortgage shopper will know (or at least convincingly fake) a significant knowledge about the industry, how mortgage rates are established, and how mortgage professionals get paid.

With this knowledge plus knowing just who to talk to and who to avoid, any “trained” mortgage shopper can expect to get a true local, ethical, professional that would never dream of pulling the same tricks he otherwise would pull on the “normal” mortgage shopper.

We developed a process to give anyone these skills in a matter of minutes…to learn more click on The Mortgage Advantage.

Great question,

Good Luck

Author: Rob K. Blake