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  1. #1
    Join Date
    May 2006

    From 24 years in the mtg biz.

    First, I am not selling anything.

    But, I do have 24 years in the Mortgage business. I used to own a 17 branch 400 employee mortgage banking firm which I sold to a bank. I have been involved in 10s of thousands of mortgages.

    So here are some of my knowledge, observations and thoughts.

    The secondary market creates YSP (aka rebate points).

    The secondary market is where closed mortgages are bought and sold either for above or below par depending on the current interest rate/risk involved in similar term/rate/risk/type etc. loans. So the secondary market creates the opportunity for the mortgage company to "get paid" without charging the borrower points.

    This will continue to happen and I expect increase as there are some big players in the mortgage biz with millions of millions to spend touting no points/no fees which should read APPLY FOR A HIGH INTEREST RATE MORTGAGE HERE.

    How do these guys get away with this scam because you, the borrower, want to hear - - it is freeeeeeeeeee.

    Understand, with an honest mortgage company, it is usually better to pay a point or two and take the lower rate. The secondary market has a heavy penalty for the interest rates with rebate points. Exception -- you are only going to be in your home for a few years. Then take the No points loan which gives you the lowest mortgage balance to be paid off when you sell your home. If you are not sure you are moving soon then pay a point and take the lower rate.

    Now to some economics/facts of the mortgage business.

    One -- 80% of the people that enter the mortgage business as loan officers make little or no money. Most of them leave the business or stay in the biz for a while in a state of comatose borrowing from their company or living off others. Most states even force the mortgage companies to pay these non achievers at least minimum wage while they train them which of course lowers the pay for the Loan Officers actually getting loans funded. Everything comes from some place so guess who else ends up paying for these minimum wage laws? Much money is paid in America to Loan Officers that never fund a loan.

    Two -- the mortgage biz is extremely competitive and most mortgage companies barely make it.

    Three -- There is some gouging, as in all business. It is done to a minor degree to the unknowing and mostly to the somewhat deserving (bad credit/high risk). The worse is done by the biggest banks/bankers in the industry.

    Four -- If you see/hear an ad for a mortgage especially on TV or radio then know you will probably get a better deal from your local mortgage broker.

    Five -- and this a big one -- generally mortgage companies do not over-charge considering their cost. Understand the BIG issue for mortgage companies is the freedom of the potential borrower. Let's say a mortgage company buys leads. They pay let’s say $50 for a quality lead. The industry averages are - It takes 20 leads to get someone that will make it in the process to appraisal. Then it gets sticky. Due to the highly competitive nature of the business the "dark side" of the biz then surfaces. Short version - other mortgage companies or the potential borrower then shops the loan. A desperate Loan Officer from company B promises the potential borrower the sky and then gets them to move the process to their company. Now back to the first mortgage company, they have $1000 (20 x $50 leads each) plus $100s of dollars in time/overhead getting the loan to that point then POOF all that money is gone.

    So, the freedom of the borrower to float their loan around generates much cost that is passed along to -- guess who?

    The bottom line it is not unusual for a mortgage company to have $1500 or more just in marketing cost in a funded mortgage. In addition the Loan officer gets between 35% to 60% of the points dollars (in the leads provided case) and 60% to 90% in the case they got the loan on their own at no marketing cost to the mortgage company. Then the overhead 20 times $15 each credit reports to get one loan to appraial, the high insurance, rent, salaries, etc. etc.

    Based on my experience, the average Loan Officer funds around 2 loans per month so they need to be making a couple of thousand a funding. This all means that the mortgage broker must be getting $4500 to $6000 or more per funding to survive. If they are doing a more difficult and time extensive subprime loan even more is often needed.

    Now why does mortgage companies try to hide their income on the loan -- because of the highly competitive nature of the business, bait and switch Loan Officers (too good to be true deal), but mostly because the general public just does understand all the costs/risks involved for the broker/lender. It is just too complicated and hard to explain as I am learning as I write this. ha

    In my opinion are there really big, bad guys in the biz?

    YEP, first and largest rip-off artist in the biz is FNMA and especially Freddie Mac. They hid under the protection of the federal government and out of public site. A full percent or more of your 6% mortgage goes to them which equates to $8,000 to $10,000 in points dollars on a $200,000 mortgage.

    What do they do for that big money? That is their fee for putting your mortgage in a bond that the Wall Street bond brokers can sell. I guess that takes about a nanosecond per mortgage. And guess who pays if the mortgage goes bad. Well, under their contract that all mortgage bankers/banks MUST sign - the banker pays. FNMA and FLMC don't even take the risk. Unbelievable, but true. They pay their execs outrageous salaries and their profits are still off the map. But no one in the government is policing them as they are them.

    The other bad guys in the business are the big name, well known players. Their names are known to one and all- just turn on your TV. Of course there are some somewhat fair big players, i.e. Countrywide, but for the most part you will get a better disclosed, fairer priced loan from your local mortgage broker. They just have a much lower overhead, profit requirements than the banks that bring you those loved 29% (non tax deductible) credit cards.

    I am also afraid that it is getting more common that your real estate agent is getting a kickback as they are requiring it from the mortgage broker for the referral as it has value. Although a kick back doesn't necessarily mean you are over paying. They may be paying the real estate agent just what or a portion of what they used to pay the Loan Officer for sourcing the loan. Still, I think it is wrong and a conflict of interest. Your "buyer's" agent should be working on your behalf if you are buying a home through them. By the way, you should have a "buyers" agent as the agent that listed the home is working for the other side. No additional cost to you.

    My advise for someone needing a mortgage.

    1. Don't fill out a form on the internet unless you want to overwelmed with calls from high pressure salespeople. Reason they are high pressure? Your information is sold 3-6 times or more, sometimes many more for up to 6 months. This sets up the end result which is most potential borrowers go with the biggest liar.

    2. Understand that as you want to be paid for your work, the mortgage company deserves to make money for getting you a mortgage. Do ask their cost and expect it in writing. Do understand that they deserve 2-3 points (including rebate, YSP) plus around $1000 in fees to the originating mortage company. If your credit is bad and/or your new loan to value is going to be high, then expect to pay on the higher end of this range.

    3. Shop your mortgage before you order an appraisal. Be wary of someone remarketable lower. Treat your chosen Loan Officer as you wish to be treated. Tell them the truth -- the whole truth. Hiding critical information from them will bite you. Then stay with that mortgage company to the end unless they try to bait and switch you to a higher cost loan for no good reason.

    If you can live with the rate/points quoted - ask for a 30-45 day best efforts lock which means it they can fund you loan in the lock time then you are assured of the price/rate quoted. "Best efforts" means that if the loan does not fund then the lock insurance costs nothing.

    Supply your mortgage processing company what they need from you as soon as possible. Often one piece of paper from you is all they need to start another process that takes a week or more. There are 100s of details envolved for the mortgage company to get your loan funded and tons of people envolved. Many third parties envolved that must perform some critical function have no motivation to do so. It takes the mortgage company time to convence them to get around to it.

    4. Listen to the Loan Officers you are interviewing for the job of doing your mortgage. Do they sound like a used car sales person? Do they sound knowledgeable? The best Loan Officers are personable, firm but not pushy, knowledable but not cocky, creative but not crooks, and most of all attentive to your needs. If they tell you that forged documents are needed to get you that special rate then run. It is better to pay the proper rate than take the chance of losing your home or even ending up in court being asked some tough questions. Fraud is a felony ie. prision time.

    Thanks for your patience.

  2. #2
    Join Date
    Mar 2006

    Re: From 24 years in the mtg biz.

    Great Post! Thank you.

  3. #3
    Join Date
    May 2006

    Realtor referral fees are illegal

    As mentioned in a recent thread, many Realtors and Real Estate Agents are being paid by mortgage lenders(brokers AND banks) for referring business to them. This is against the law per Section 2607 of the RESPA(Real Estate Settlement & Procedures Act) guidelines within HUD. See this at HUD.gov


    Sec. 2607. Prohibition against kickbacks and unearned fees

    (a) Business referrals

    No person shall give and no person shall accept any fee, kickback,
    or thing of value pursuant to any agreement or understanding, oral or
    otherwise, that business incident to or a part of a real estate
    settlement service involving a federally related mortgage loan shall be
    referred to any person.

    (b) Splitting charges

    No person shall give and no person shall accept any portion, split,
    or percentage of any charge made or received for the rendering of a real
    estate settlement service in connection with a transaction involving a
    federally related mortgage loan other than for services actually

    If you read this you would see it says...No person shall give...anything of value and that means, NO money,NO ballgame tickets, NO free lunches or dinners...NADA! Nothing! paid "below the table" OR above!
    Isn't it enough to get the loan closed for the borrower in a timely manner for a fair price?

    The truth is, it is happening everywhere and the borrower is usually the one who pays in the long run. If you want the absolute lowest interest rates offered...keep searching the internet and take your lumps when they come. If you want a fair deal for a fair price, do your homework and work with someone who has a good reputation and knows the industry, try to meet them face-to-face. Treat your mortgage as a financial instument just like your retirement fund, wake up...NO FREE LUNCH! PERIOD!

    Have a nice day

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