Avoid hidden costs in your mortgage.
Some mortgage lenders offer brokers a referral fee if the broker gets the consumer to accept a higher interest rate over the life of the mortgage. At closing, these kickbacks would be listed as "yield spread premiums," "service release premiums," "yield differentials," "rate participation fees," "service release fees" or "par-plus pricing."
This practice causes several problems for the consumer. One problem is that the mortgage broker has no incentive to find the best deal for their client. The broker can look for the mortgage lender that offers the best referral fee. Higher interest rates on the mortgage payments over the life of the loan causes the consumer to pay thousands of extra dollars in the end simply because of a small increase in the interest rate. Since the fees are not explicitly disclosed in the mortgage documents, the consumer has no way of knowing that the broker was not representing their best interests.
Consumers have generally understood and agreed to a specific broker's fee to be paid directly by them -- either in cash or by borrowing more -- to the mortgage broker to compensate the broker for obtaining the loan. What consumers do not understand, and have not agreed to, is called a yield spread premium. The fee is paid by the lender to the broker solely in compensation for the higher rate loan. The lender would have made the consumer a loan at one rate, but because the loan is provided at a higher rate, the broker is paid a fee, or kickback. These lender paid broker fees are not for services provided to the consumers, nor for services provided to lenders.
Yield spread premiums are not necessary to support mortgage brokers. Many loans from many brokers do not include yield spread premiums. When yield spread premiums are paid in addition to the borrower paid broker fee, the result is not only a higher price loan to the borrower, the lender then also has a loan which will be refinanced sooner. Note that the mortgage lenders are not requesting this moratorium, just the brokers. Lenders do not benefit from yield spread premiums either.
Almost everyone in America pays on average about .5% higher in mortgage rate than was necessary at the time you signed the application!
A Government study shows that mortgage consumers are losing over $16 Billion a year due to these artificially higher mortgage rates.
For example, you thought your mortgage rate and fees were outlined at application, but the loan officer or bank will intentionally wait to lock your rate for days, sometimes even weeks after you signed your application. This gives them the opportunity to blame "the market" for increasing your rate. Surprisingly, they'll do this regardless of what happened in the market so the broker can lock you in .5% higher than the true market rate making an additional 2% of your loan amount. Not knowing this insider secret will cost you $4,000 on a $200,000 loan...on top of the standard 1% origination or broker fee and 3rd party costs. There are ways to combat the Yield Spread Premium. Arm yourself with information.
Fannie Mae Weekly Yield Data - This the Wholesale Market Rate. They publish a weekly survey. Sometimes you have to run a search to look for the current week of the wholesale rate.
Freddie Mac Primary Market Survey - This is a survey of over 125 banks, brokers and mortgage companies who provide the rate and points data for that days locked commitments. It is the retail rate in the market that day as an average.
Here's how you use this data. First, get the Freddie Mac retail rate and points for the week. Then, get the Fannie Mae wholesale rate for the same week on the same product. Next, subtract the wholesale rate from the retail rate to get the "rate spread". Then, convert the rate spread to Yield Spread Premium by multiplying rate spread by 4 to get the Yield Spread Premium. Next, add the Freddie Mac average points to Yield Spread for a Total Yield Spread Premium as a percentage. Finally, multiply the Total Yield Spread Premium as a percentage of your loan amount to find the dollar amount of Yield Spread Premium.
For example, the Fannie Mae Yield on the 30 Yr fixed product is 5.52%. The corresponding week from the Freddie Mac website reports an average retail price of 5.83% with .6 discount points paid.
Take 5.83 - 5.52, which equals an upsell of the wholesale rate all across this country of .31%.
To translate this amount of rate spread into actual dollars of yield spread, we multiply .31% by 4, which is 1.24% of your loan amount. On a $100,000 loan that equals $1,240. On a $200,000 loan that equals $2,480. On a $300,000 loan that equals $3,720.
The Freddie Mac website also reported that consumers were also paying on average .6 in discount points as well, so we add 1.24% plus .6% for a total of 1.84% of your loan amount in "yield spread premium" compensation collected by your bank or mortgage broker over and above the origination fees quoted to you. That is an unnecessary fee for the consumer to pay. Over the lifetime of your loan that almost adds up to 6 months free on your 30 year mortgage example. On a $100,000 loan that equals $1,840. On a $200,000 loan that equals $3,680. On a $300,000 loan that equals $5,520.
It doesn't matter if you have perfect credit or not, YOU ARE PAYING 3% FOR YOUR MORTGAGE AND YOU DON’T EVEN KNOW IT! If you add 1% for an origination fee plus the 1.84% in total Yield Spread Premium, this shows the average consumer was paying a total of 2.84% for their loan. Which is close to 3%. Don’t be a victim of higher prices. Do your research and save yourself unnecessary costs associated with buying, or refinancing your home.
This practice causes several problems for the consumer. One problem is that the mortgage broker has no incentive to find the best deal for their client. The broker can look for the mortgage lender that offers the best referral fee. Higher interest rates on the mortgage payments over the life of the loan causes the consumer to pay thousands of extra dollars in the end simply because of a small increase in the interest rate. Since the fees are not explicitly disclosed in the mortgage documents, the consumer has no way of knowing that the broker was not representing their best interests.
Consumers have generally understood and agreed to a specific broker's fee to be paid directly by them -- either in cash or by borrowing more -- to the mortgage broker to compensate the broker for obtaining the loan. What consumers do not understand, and have not agreed to, is called a yield spread premium. The fee is paid by the lender to the broker solely in compensation for the higher rate loan. The lender would have made the consumer a loan at one rate, but because the loan is provided at a higher rate, the broker is paid a fee, or kickback. These lender paid broker fees are not for services provided to the consumers, nor for services provided to lenders.
Yield spread premiums are not necessary to support mortgage brokers. Many loans from many brokers do not include yield spread premiums. When yield spread premiums are paid in addition to the borrower paid broker fee, the result is not only a higher price loan to the borrower, the lender then also has a loan which will be refinanced sooner. Note that the mortgage lenders are not requesting this moratorium, just the brokers. Lenders do not benefit from yield spread premiums either.
Almost everyone in America pays on average about .5% higher in mortgage rate than was necessary at the time you signed the application!
A Government study shows that mortgage consumers are losing over $16 Billion a year due to these artificially higher mortgage rates.
For example, you thought your mortgage rate and fees were outlined at application, but the loan officer or bank will intentionally wait to lock your rate for days, sometimes even weeks after you signed your application. This gives them the opportunity to blame "the market" for increasing your rate. Surprisingly, they'll do this regardless of what happened in the market so the broker can lock you in .5% higher than the true market rate making an additional 2% of your loan amount. Not knowing this insider secret will cost you $4,000 on a $200,000 loan...on top of the standard 1% origination or broker fee and 3rd party costs. There are ways to combat the Yield Spread Premium. Arm yourself with information.
Fannie Mae Weekly Yield Data - This the Wholesale Market Rate. They publish a weekly survey. Sometimes you have to run a search to look for the current week of the wholesale rate.
Freddie Mac Primary Market Survey - This is a survey of over 125 banks, brokers and mortgage companies who provide the rate and points data for that days locked commitments. It is the retail rate in the market that day as an average.
Here's how you use this data. First, get the Freddie Mac retail rate and points for the week. Then, get the Fannie Mae wholesale rate for the same week on the same product. Next, subtract the wholesale rate from the retail rate to get the "rate spread". Then, convert the rate spread to Yield Spread Premium by multiplying rate spread by 4 to get the Yield Spread Premium. Next, add the Freddie Mac average points to Yield Spread for a Total Yield Spread Premium as a percentage. Finally, multiply the Total Yield Spread Premium as a percentage of your loan amount to find the dollar amount of Yield Spread Premium.
For example, the Fannie Mae Yield on the 30 Yr fixed product is 5.52%. The corresponding week from the Freddie Mac website reports an average retail price of 5.83% with .6 discount points paid.
Take 5.83 - 5.52, which equals an upsell of the wholesale rate all across this country of .31%.
To translate this amount of rate spread into actual dollars of yield spread, we multiply .31% by 4, which is 1.24% of your loan amount. On a $100,000 loan that equals $1,240. On a $200,000 loan that equals $2,480. On a $300,000 loan that equals $3,720.
The Freddie Mac website also reported that consumers were also paying on average .6 in discount points as well, so we add 1.24% plus .6% for a total of 1.84% of your loan amount in "yield spread premium" compensation collected by your bank or mortgage broker over and above the origination fees quoted to you. That is an unnecessary fee for the consumer to pay. Over the lifetime of your loan that almost adds up to 6 months free on your 30 year mortgage example. On a $100,000 loan that equals $1,840. On a $200,000 loan that equals $3,680. On a $300,000 loan that equals $5,520.
It doesn't matter if you have perfect credit or not, YOU ARE PAYING 3% FOR YOUR MORTGAGE AND YOU DON’T EVEN KNOW IT! If you add 1% for an origination fee plus the 1.84% in total Yield Spread Premium, this shows the average consumer was paying a total of 2.84% for their loan. Which is close to 3%. Don’t be a victim of higher prices. Do your research and save yourself unnecessary costs associated with buying, or refinancing your home.
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