Wholesale Lender Email Reveals The Yield Spread Premium Lie!
Mortgage Insider » Mortgage News » Wholesale Lender Email Reveals The Yield Spread Premium Lie!
More Evidence Reveals the Yield Spread Premium Lie Is Real!
So as you may know my pet peeve of the mortgage industry is Yield Spread Premium (YSP) overcharging.
What is YSP overcharging?
It is how the mortgage industry makes big hidden bucks by lying to borrowers about mortgage rates…closing 90% of all loans at rates higher than required.
This is the only way a yield spread premium (ie. a lump sum of money calculated as a percentage of your loan amount) is created. Click the link above to read all about it, but suffice it to say, virtually everyone is a paying a higher monthly payment based on a rate that was artificially jacked up for no other reason than to profit the mortgage company.
Congressional Testimony
Professor Howell Jackson of Harvard Law School said in testimony before Congress,
“…borrowers are simply told that their loans will have a certain interest rate, and they never understand that the interest rate is higher than it needs to be.”
That’s a Harvard Professor testifying under oath before Congress on his findings after doing a 2 year study.
Quotes don’t get any more credible than that!
Now even though I’ve screamed about this abuse for years, many of my readers, potential clients, and others still find it hard to believe a multi-billion dollar rip-off could exist without everyone knowing about it.
Well you have to pay attention (like reading this blog..haha) to hear about it…but believe me, it is real!
More Evidence
Being a 15 year industry veteran, I recently received an email from a wholesale lender (who shall go nameless. Since they all do it, singling them out wouldn’t be fair) where you can clearly see they are pandering to the yield spread premium “hiding” crowd of mortgage originators. They even use the word “confidential” to signal the deceptive nature of not disclosing YSP.
Lenders solicit brokers with this and other YSP hiding methods to steal from you the American homeowner and they’ve been do it for years.
Mortgage Brokers Are Not Alone
And don’t think for a second, it’s only the brokers…no, no, no.
The big banks do it too. It’s called Service Release Premium (SRP), but it’s the same thing…and get this:
By Federal Law the banks are exempt from showing it to you!
Now you know who really has the power in the mortgage industry.
This Congressional testimony and lender email are two more pieces of evidence yield spread premium overcharging is real and needs to be avoided to get the best mortgage rate on your next home loan.
Author: The Mortgage Insider
Date: March 7, 2007
Tags by Post Bait-n-Switch, Home Buying Tips, Refinancing Tips, Scams, Yield Spread Premium
Technorati Bait-n-Switch, Home Buying Tips, Refinancing Tips, Scams, Yield Spread Premium
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Wholesale Lender Email Reveals The Yield Spread Premium Lie!
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Tom,
Thanks for trying to help out Justin B…but if you had read the whole conversation you’d have noticed part of one of my very early post to him that read as follows:
“But be careful Justin, when you look at the HUD1 in the lines 800 looking for the yield spread premium amount…
Remember it will only be there if your originating company brokered the loan to a wholesale lender.
Banks, net branches, and direct lenders are EXEMPT by law from disclosing yield spread premium …so Justin, if that company you used in Utah funds their own loans or is a bank…you could have still got taken!!
You are actually getting all this..and I’m really happy for you. You’ve put in the time and research, educated yourself, kept an open mind, and you are going to be a savvy mortgage consumer from here on out.
Just remember, Never do a loan with a bank or direct lender or a company who funds loans in their own name. Always use a broker.
Tell him you understand yield spread premium and know how to discover it, and won’t tolerate him enriching himself that way.
Negotiate a total compensation amount to him for his service…1% only regardless of the type of loan…that would be fair.
And ask him if he’ll work for that knowing he’ll get no “backend compensation”. Tell him you’ll want to see the HUD a day in advance (Federal law gives you that right) but even prior to that you’ll want a copy of the wholesale lender lock confirmation on the day of lock. Since any yield spread premium be would be disclosed on the lock confirmation, you’d be able to catch any attempts at yield spread premium profiteering earlier than a day before closing.
Any ethical broker would accept these terms.”
Any direct lender incorporates your advice on “correspondent lenders”. And Justin B got it a little later in the thread as well.
Justin B,
I operate a whoelsale mortgage company and have done so for quite some time. Before you give your “mortgage guy” too much credit for no making yield spread on you you need to understand another dirty secret. He may very well be a correspondent lender. I won’t go to into all the details, you can Google correspondent lending to get a better understanding, but the point I am trying to make is that if he is a correspondent lender, he is NOT required to disclose yield spread to you, the borrower. I don’t either way if your “mortgage guy” is correspondent but if he is he might have made 2 or 3 point yield spread off of you without having to disclose it!
Your point of “a lot of bad brokers out there” is certainly not wasted here.
I probably spend more than half my time bashing the bad broker! yield spread premium overcharging, bait n switch, selling the wrong loans etc.
I’ll definitely agree with you there.
However, I will have to disgree when you say, “I still maintain it comes down to the ethics of the loan officer, whether they be Banker or Broker.”
and here’s why: The above statement as I’m sure it applys very well to you…it doesn’t translate at all into the actual marketplace.
And since this blog and website are designed to help consumers, a statement like that just muddys an already muddy pond.
The average consumer doesn’t run into Mike Brown …he runs into the like of the “monkeys” (if I can steal your phrase) in the big banks…and you’ve already admitted they charge “huge fees”.
With that said, a consumer can learn here how to work with a broker like us and get a 1% point loan at a true par rate…all he has to do is stay on track and read!
Thanks for your contributions…look forward to anything you can add on your Seattle market or other happens in your neck of the woods.
You took what I wrote a little wrong, I think. I work Brick and Morter, not Net Branch. I agree that the folks at CW and Lenox and several other lenders here ( Seattle) are hiring “monkeys” to take applications at huge fees.
I actually straight broker (not net or correspondent) about 70% of my transactions because I values my clients and I don’t need to hide anything on what I make.
Normally I tear apart the average brokers because I am working for about 1pt (.75%-1.25%) on every deal no matter which way it comes in (upfront or yield spread premium ).
I think that if someone is a true “Loan Officer” they know the cost of the money. If they are any good or if they truly care about their clients, they come to work for someone like me or someone like you. If they are not true Loan Officers, GET OUT of the business and quit making the job harder.
I just dont like being painted with the same general brush and lets not forget that there are a lot of bad brokers out there also.
In the end, I still maintain it comes down to the ethics of the loan officer, whether they be Banker or Broker.
ps. our bank doesnt do checking, just savings and cds. To our advantage also, we can make exceptions and judgement calls that Brokers cannot when we use our internal products (a service that a broker cannot provide), instead of begging someone else’s underwriter at some investor.
Michael,
I take it you work for a “net branch” when you say you can either go “either direction”. Which means you can “hide” the overage when you “banker” a loan but must disclose the overage when “broker” a loan…so let me guess how often do you “broker”…uh, never, right? ( Unless your “bank” rate sheet is ridiculously high…at most net branches and “real” banks that’s true…see below)
All things being equal, If “bankering” gets you more money with less “hassle”, then that’s what you’d do, right?
Which is why I say, “Never use a banker”.
Plus are you implying that the telemarkeing boys at Lennox or Countrywide are even told what the “real” or “total” overages are with their “in-house” rate sheets? Of course, not! They are given a Company rate sheet that tells them only part of the overage at each rate being shown…if they really knew the “total” overages their bank was making…they’d all ask for a raise or a bigger comission split!
Bankers, bank employees, or net branch originators can’t disclose what they can’t see! You can’t disclose when you “banker” a loan what you can’t see either. You may with the “banker” rate sheet you get, find that “brokering” the loan is better for the customer, and that’s great because it forces you into a conversation with the client. But for every 1 of you, there is a 100 who go the other direction…
Once again, the big banks need the 3 total points…if I had their overhead, I would too.
But that’s exactly my point: Banks are not the low cost provider of 1st mortgage money in the US…it’s a fact.
The banks themselves knew this fact which is why they spent so much time, energy, and money getting the law changed back in 1999 to exempt them from “total” compensation disclosure laws that the brokers were forced to comply with.
When you are making 2/3 of your income from overage, you certainly don’t want anyone to see it, right. And if the customer won’t ever see it, do think that income stream will grow? Hell, overdraft charges have gone up 400% in 10 years, and banking customers actually get to see that charge. If they aren’t bashful there, they sure as hell aren’t going to be bashful on a charge the customer will never see!
Given these facts…wise consumers should never use a banker for 1st mortgage financing….period.