Yale Roth M.A., M.Ed

Posts Tagged ‘loan officer’

Equal Housing Or Not? How Much Money Does Your Mortgage Company Make Off Of You?

I get the mortgage question: “Why are some mortgage companies providing lower rates and fees than other companies?”

The answer to that mortgage question is simple: the mortgage company is working on smaller profit margins and some mortgage companies make more money from you than others.

It’s just like doing business with any company.

This is how the upfront profit to the mortgage company is calculated.

When you shop for a mortgage, you give the mortgage broker or loan officer the details of your transaction and they look at a mortgage rate sheet.

The rate sheet is generated internally by the mortgage company every morning and shows what the upfront revenue to the mortgage company for the individual mortgage rates listed.  The mortgage rates sheets are distributed to the loan officers or mortgage brokers.

So the mortgage broker or loan officer determines how much money they want to make.

While doing this, they also keep in mind that in order to get your business, they need to be somewhat competitive, so the quote you a mortgage rate that they believe will produce revenue for the company while remaining competitive in the mortgage marketplace.

In other words, they’re not going to quote a mortgage rate that is very high but will generate a lot of revenue for the company because in all likelihood, you’ll compare it with another mortgage company and realize that mortgage rate quote is too high.

The mortgage broker or loan officer is walking a fine line – they want to generate revenue for themselves and the mortgage company; however, they need to quote a mortgage rate that is fair.

Inherently, the mortgage broker or mortgage loan officer is working at a cross purpose because they want to quote a somewhat higher mortgage rate to maximize their revenue.

You may want to consider an “Upfront Mortgage Lender” when comparing mortgage rates.  An “Upfront Mortgage Lender” designation provides flat pricing.

What that means is that the revenue to the company and the mortgage loan officer is flat.  That means that it’s the same if no matter what mortgage rate you select.

The mortgage company or loan officer has no incentive to steer the borrower to a higher interest rate because the profit is greater.

The busier mortgage companies work on thinner profit margins and as result have greater loan volume because they offer mortgage rates that cost less.

They make their money on volume, not on big profits from individual mortgage applications.

You have to do your due diligence and shop around to see the mortgage rates and the costs or credits to get them.

Some mortgage companies will offer higher mortgage rates and with the revenue generated from the higher rates, give that back to you – the borrower – in the form of a lender credit.

This can make a great deal of sense for the borrower and is worth exploring!

Related Posts:

• Mortgage Services Money Talks – Do All Mortgage Companies Provide The Same Type Of Mortgage Services?
• Mortgage Services – Top 3 Tips To Avoid Getting Ripped Off By Your Mortgage Services Company
• Are You Getting Ripped Off By Using A Mortgage Broker To Refinance Your Mortgage?
• Mortgage Questions – “What’s The Difference Between A 30 Year Fixed Mortgage And A 10 Year Fixed Mortgage?”
• Mortgage Rate Questions – “Are The Mortgage Rates The Same For A Cash Out Refinance?”

I talk to a lot of people throughout the day about mortgages.  Right now, mortgage rates are very low so the mortgage refinance volume is high.

However, there are still people out there buying new homes and there are many first time home buyers.

Here are 3 tips first time home buyers need to know when shopping for a mortgage.

Tip #1.  Compare Mortgage Rates.

Identify 3 mortgage lenders or banks.  Speak to a loan officer and first determine what type of mortgage loan you want or would qualify for.  Discuss the pros and cons of different loan types.  For example, ask “what’s the difference between an FHA mortgage and conventional mortgage?” Or, “What are the pros and cons of going into a shorter term mortgage as opposed to a 30 year fixed mortgage?”

Once, you’ve determined the right loan type, get a mortgage rate quote.

Tip #2 – Compare Lender Fees

Once you’ve gotten the mortgage rate quote, find out what the mortgage lender is charging you for that mortgage rate.  Don’t get confused when the loan officer says “No points.”  They can still charge you a lot of money and just call those fees something else: like an underwriting fee, processing or lender administration fee.  Who cares what the fee is called, it’s still money out of your pocket!

Tip #3 – Trust Your Instincts

Once you’ve gotten the mortgage rate quote and how much the mortgage lender is charging you for that mortgage rate, ask a few more additional questions to figure out whether the loan officer and mortgage lender is worth doing business with.

That is, thrust your “gut.”  If the loan officer doesn’t seem experienced or the mortgage company is one that just doesn’t feel right to you, go with your instincts.  Not only do you want to save money, but you want to be comfortable with the loan officer and mortgage company you’re doing business with.

So, first time home buyers, in conclusion, you want to identify 3 mortgage lenders or banks, get 3 mortgage rate quotes, find out what the dollar amount is that the lender is charging you, and finally, trust your instincts about whether you want to do business with the individual loan officer or mortgage company.

Related Posts:

• Mortgage Questions – “Does It Make Sense To Pay Discount Points To Get A Lower Mortgage Rate For An Adjustable Rate Mortgage?”"
• Mortgage Questions – “How Much Money Is My Mortgage Company Making?”
• Mortgage Questions – “Can I Qualify For A Mortgage With A Credit Score Below 620?”
• Mortgage Questions – “What’s The Difference Between A 30 Year Fixed Mortgage And A 10 Year Fixed Mortgage?”
• Mortgage Rate Questions – “Are The Mortgage Rates The Same For A Cash Out Refinance?”

When applying for a mortgage people tell me it’s almost like buying a car.

I cringe when I here this as I know there are many good, honest and reputable loan officers and mortgage brokers out there providing top flight mortgage services.

Unfortunately, there are also a number of mortgage brokers who either don’t know what they’re doing or are just plain unethical when providing mortgage services.

Here are 3 tips you need to know so you can navigate through the mortgage services process smoothly and without paying more than you should.

1. Give the loan officer or mortgage broker the following information:

a. If it’s a new home purchase, give them the purchase price – if the transaction is a refinance, give them an accurate estimate of the home’s value.

b.  down payment amount (if it’s a new home purchase)

c. your estimated credit rating (i.e. excellent, good, fair, poor)

d. your annual household income

e. where your  down payment money is coming from (if it’s a purchase)

f. the type of property you are buying (i.e. single family home, condo)

With this information, the loan officer or mortgage broker will be able to give you an accurate mortgage rate quote.

2. Next, after getting the mortgage rate quote, pin down from the loan officer of mortgage broker the TOTAL lender fees.  This includes underwriting fees, processing fees, discount points, etc.  Get the BOTTOM LINE figure to be paid to the bank for the mortgage rate.

3. Get a Good Faith Estimate of closing costs.  Look at letter “A” on page 2 of the GFE.  It  says “Your Adjusted Origination Charges.”  These are the total bank fees.  Now look at page 1 of the Good Faith Estimate.  Towards the top of the page it reads, “The interest rate for this gfe is available through …”  And there is a box for a date.  There is a date in there.  See how long the rate is being offered for.

With the Good Faith Estimate you have 2 important pieces of information that will help you through the mortgage services process: the mortgage rate quoted and the amount the bank or mortgage lender is charging you for the mortgage rate.

Remember, get that information in writing.  Talk is cheap.  Loan officers and mortgage brokers say a lot of things.  Pin them down with information that can be put in writing and that can hold them accountable.

With this, you will avoid mortgage bait and switch tactics and make the mortgage services process go smoother and a lot easier as you will know what to expect.

Related Posts:

• Mortgage Questions – “How Much Money Is My Mortgage Company Making?”
• Mortgage Questions – How Do I Calculate My Closing Costs For My Mortgage Refinance?
• Are You Getting Ripped Off By Using A Mortgage Broker To Refinance Your Mortgage?
• Mortgage Questions – “What’s The Difference Between A 30 Year Fixed Mortgage And A 10 Year Fixed Mortgage?”
• Mortgage Rate Questions – “Are The Mortgage Rates The Same For A Cash Out Refinance?”

I will be addressing this in a FAQ video post, but I get a lot of questions on this topic.

Mortgage brokers and loan officers are paid by what’s called “service release premium” (SRP) or “yield spread premium” (YSP), depending on whether the loan is brokered to a third party investor or whether the loan officer works for a bank or direct lender.

In a nut shell, the higher the interest rate locked, the higher the SRP or YSP.  It is out of this money that a commission is paid.  So if the loan amount is $100,000 and the SRP for a 30 yr fixed mortgage at 5.25% is 1%, the total commission earned is $1000.

The broker or loan officer receives a split from this amount.  The split varies from employer to employer.

Sometimes the broker or loan officer secures a “par” or “below par” rate where there is no YSP or SRP or where there may even be a cost to get that rate.  In that circumstance, the broker or loan officer will charge an origination fee or discount point(s).

So if a “par” rate on a 30 yr fixed is 5.00% and the SRP is 1 point at 5.25%, the broker or loan officer may give the borrower a choice: 5.00% with 1 point origination or 5.25% with no origination, knowing that the commisionable fees are the same – 1 point.

These commissions are now disclosed on the Good Faith Estimate as well as certain state specific disclosures. 

Keep in mind, the higher the locked in rate, the higher the commission.

Call me for an alternative to trying to play the rate game with your mortgage broker or bank loan officer because 9 out of 10 times, you’ll lose.

Yale Roth is a FHA Mortgage Specialist and provides mortgages for homeowners throughout the United States. 

Call Yale at 561-350-7684 with any mortgage-related questions or visit his rate page at http://www.YaleHomeLoan.com

Related Posts:

• Mortgage Services – Top 3 Tips To Avoid Getting Ripped Off By Your Mortgage Services Company
• Mortgage Questions – How Do I Calculate My Closing Costs For My Mortgage Refinance?
• Mortgage Services ALERT! Mortgage Rates Drop. September 1, 2011
• 3 Critical Factors To Get The Best Mortgage Rate!
• Mortgage Rate Update. Thursday, April 8, 2010

Watch this video:

In this 2 minute video, Yale Roth talks about the difference between a Mortgage Banker and a Mortgage Broker.   The video is very informative.

Yale Roth is a Senior Mortgage Consultant and specializes in FHA Mortgages.  Contact Yale at 561-350-7684 with any mortgage-related questions.

Related Posts:

• Mortgage Video FAQ #1 – Which is a Better Loan Type – Adjustable Rate Mortgage vs. Fixed Rate Mortgage?
• Mortgage FAQ #4 – “Can My Interest Rate Drop Once It’s Locked In”?
• Mortgage FAQ #3 – How Best to Shop for a Mortgage
• Can I Use The $8000 Tax Credit For My Down Payment?
• FHA Tightens Guidelines – January 21, 2010