Mortgage Banks and Brokers everyday are closing home buyers and refinancers at a higher rate than they deserve! This artificial upping of the rate and the revenue created by doing so are hidden from the customer. This hidden ripping-off of the mortgage consumer is called Yield Spread Premium overchaging if the loan is originated by a broker and Service Release Premium overcharging if the loan is originated by a mortgage bank…you know, Countrywide, Wells Fargo, or Bank of America.
Prof. Howell E. Jackson, Associate Dean for Research and Special Programs Harvard Law School, testified before the Senate Banking Committee on January 8, 2002, and testified to the following:
…the vast majority of borrowers pay yield spread premiums – on the order of 85 to 90 percent of all transactions. Moreover, the average amount of yield spread premiums is quite substantial, on the order of $1,850 per transaction, making these payments the most important single source of revenue for mortgage brokers. In other words, contrary to the Departments assumptions, yield spread premiums are not an optional form of financing made available to a limited number of borrowers with special needs. Rather these payments constitute by far the largest source of compensation for mortgage brokers and are imposed on almost all borrowers who obtain mortgages or refinancings through this segment of the industry.
If Professor Jackson testified on Service Release Premium that mortgage banks receive, I am sure his statments would echo the same as above.
The Governments own numbers, which are grossly understated I might add, say this Yield Spread and Service Release premium overcharging costs American home owners $16,000,000,000 a year…each any every year!
To beat these guys at their own game, you simply must learn how they price out a loan including this rip-off! Reading this article is a good start, however, the complete guide to eleminated Yield Spread and Service Release Premium overcharging is outlined in my ebook, Mortgage Secrets Exposed!. See the resource box at the bottom for more information.
Understanding how to price out a loan by reading Mortgage Bank Rate Sheets is really quite easy though it may seem intimidating at first. It will all become clear as you read this narrative on how we do it at our company, Integrity First Mortgage, Inc. in Denver. So, settle in and take the 10 minutes to read this article and understand this practice.
Doing so will save you 10s of $1,000 over your lifetime owning and financing houses. A small price to pay indeed!
Here we go!
All of mortgage lenders we work with at Integrity First Mortgage, Inc., furnish us with rate sheets on a daily basis via the internet or by fax. We follow the rates several times a day in order to properly quote the best available rate and term to our customers. When reviewing the rate sheet, we also determine which rate will NOT create a rebate from the lender known as a Yield Spread Premium. We believe upping your rate to make additional revenue over the 1% origination fee is deceptive, dishonest, and a bad business practice…believe me, other companies do not hold that opinion.
Let’s use the rate sheet data below to demonstrate how we determine the rate that we quote to our borrowers. We will also show you using the corresponding HSH Survey data how other Brokers and Banks are making enormous undisclosed profits in the form of Yield Spread Premium.
Lender Rate Sheet (see below ) data was collected from a real Wholesale Lender’s (Ampro Mortgage ) Rate sheet dated 03/10/2006. You can confirm the HSH data is real as well by visiting HSH.com.
30 Year Fixed
Rate 15 Day 30 Day 45 Day
5.750% 1.350 1.475 1.600
5.875% 0.611 0.736 0.861
6.000% 0.039 0.164 1.826
6.125% (0.392) (0.267) (0.142)
6.250% (0.773) (0.648) (0.523)
6.375% (1.180) (1.055) (0.930)
6.500% (1.623) (1.498) (1.373)
6.625% (2.029) (1.904) (1.773)
6..750% (2.280) (2.155) (2.030)
HSH ASSOCIATES The Nations Largest Publisher of Mortgage
The Nations Mortgage Market: Average Rates for Residential Mortgages Week ending March 10, 2006
Owner-occupied 1-4 Family and Condos: Previously Occupied Homes Source: HSH Associates
National Ave. SURVEY CONVENTIONAL MORTGAGES
In our example, we will quote our borrower a 30 year rate that carries a lock period of 30 days. If we are seeking to earn only a 1.0% origination fee and NO yield spread premium (back end fee), we will quote the rate of 6.000%. According to the rate sheet, 6.000% actually costs .164% Discount payable to the Lender not Integrity First Mortgage. On this rate sheet, 6.000% is as close to par pricing as we can get. As you can see the next higher rate, 6.125% creates .267% of Yield Spread Premium and that’s not good. (YSP is shown in (.267) parenthesis). So with this example, look at the costs for a loan at 6.00% with us.
Rate: 6.000%, $200,000 Mortgage Loan x 1.0% Broker Origination Fee + 0.164 Discount = $200,000 x 1.164% = $2,328.00
Now we will show how everyone else does it! First realize that banks and brokers don’t usually quote you the rate you’ll close with…they bait-and-switch with low-ball rates and artificially lowered closing costs to get you to apply with them. Then on closing day, the rates and costs are higher than you expected, but they claim their Good Faith Estimate was in deed just that…an estimate. You’ve got the moving van idling in parking lot, so you sign. They count on the fact you are painted into a corner and have but one option…sign.
How do I know this to be true? One reason is 15 years of asking folks, “How did your last loan go…any surprises at closing?” About 85% of those folks answer, Yes to that one. Second, every closing exit poll conducted by Fannie Mae and Freddie Mac show the same results. But the most compelling reason is up above on HSH Survey data. It shows for the week ending Mar 10, 2006, the National Average interest rate on CLOSED Loans was 6.51%!
(NOTE: HSH has an agreement with their 2000+ survey participants to give them closed loan rates, not lobby rates or other teaser rates.)
I guarantee you that all those folks did not sign a Good Faith Estimate at application showing them 6.5% because that is not the rate advertised all over the news, radio ads, and the internet over the prior 4-6 weeks when these folks were applying. The loan officer for the bank or broker could not very easily advertise 6.00% and have them sign at 6.5%…everyone would balk at that. So they show them 6.00%, get them to sign, and then sometime during processing or just at the closing, the borrower is informed his rate had to be adjusted upward. The loan officer will get very creative on explaining all the reasons why this had to happen, but suffice it to say, this was the plan from the beginning. So with this rate sheet data, let us look at what they made.
Rate: 6.500%, $200,000 Mortgage Loan x 1.0% Broker Origination Fee +1.498 YSP = $200,000 x 2.498% = $4,996.00
The banks and brokers simply cannot forgo the Yield Spread Premium overcharging because at the very least it DOUBLES their income for each loan!
Now with this tutorial and our daily rate sheet updates you can protect yourself from the most egregious consumer rip-off in history.