Every day, mortgage banks and brokers close home buyers and people who want to refinance at a higher rate than they should. The customer doesn't know about this phoney rate hike or the extra money it brings in. This sneaky way of ripping off mortgage customers is called Yield Spread Premium overcharging if the loan is started by a broker and Service Release Premium overcharging if the loan is started by a mortgage bank like Countrywide, Wells Fargo, or Bank of America.
Professor Howell E. Jackson, Associate Dean for Research and Special Programs at Harvard Law School, testified in front of the Senate Banking Committee on January 8, 2002. He said the following:
I
...about 85 to 90 percent of all transactions involve borrowers paying yield spread premiums. Also, the average amount of yield spread premiums is quite large, around $1,850 per transaction. This makes them the most important source of income for mortgage brokers. In other words, contrary to what the Department thought, yield spread premiums are not a form of financing that a small number of borrowers with special needs can choose to use if they want to. Instead, these payments are by far the biggest way that mortgage brokers get paid, and almost all borrowers who get a mortgage or refinance through this industry have to pay them.
I'm sure that if Professor Jackson testified about the Service Release Premium that mortgage banks get, his statements would be the same as the ones above.
The government's own numbers, which are way too low, show that overcharging for Yield Spread and Service Release premiums costs American homeowners $16,000,000,000 each and every year.
To beat these guys at their own game, you just have to figure out how they price a loan, including this scam. Reading this article is a good start, but my ebook, Mortgage Secrets Exposed!, has the full guide to getting rid of Yield Spread and Service Release Premium overcharging. For more information, look at the box at the bottom.
It's easy to figure out how much a loan will cost by reading Mortgage Bank Rate Sheets, even though it might seem scary at first. As you read about how we do it at Integrity First Mortgage, Inc. in Denver, everything will become clear. So, get comfortable and give yourself 10 minutes to read this article and learn what this practise is all about.
Doing so will save you tens of thousands of dollars over the course of your life if you buy and pay for houses. A very small price to pay!
Here we go!
Every day, all of the mortgage lenders with whom Integrity First Mortgage, Inc. works send us rate sheets over the internet or by fax. We check the rates several times a day so that we can give our customers the best possible rate and term. When we look at the rate sheet, we also figure out which rate will NOT lead to a Yield Spread Premium, which is a rebate from the lender. We think that raising your interest rate to make more money on top of the 1 percent origination fee is deceptive, dishonest, and bad business. Other companies don't agree with us, though.
Let's use the information on the rate sheet below to show how we figure out the rate we tell our borrowers. Using the same HSH Survey data, we will also show you how other Brokers and Banks are making huge, undisclosed profits from Yield Spread Premium.
The information on the Lender Rate Sheet (see below) came from a real Wholesale Lender (Ampro Mortgage) Rate sheet from March 10, 2006. You can also check that the HSH data is real by going to HSH.com.
30 Years Stable
Rate 15 Day 30 Day 45 Day
- 500 percent (1.623) (1.498) (1.373)
- .750 percent (2.280) (2.155) (2.030)
- 875 percent 0.611 0.736 0.861
- 750 percent 1.350 1.475 1.600
- 125 percent (0.392) (0.267) (0.142)
- 625 percent (2.029) (1.904) (1.773)
- 000 percent 0.039 0.164 1.826
- 375 percent (1.180) (1.055) (0.930)
- 250 percent (0.773) (0.648) (0.523)
HSH Associates is the largest mortgage publisher in the country.
The Average Rates for Residential Mortgages for the Week Ending March 10, 2006
Owner-occupied 1-4 family homes and condos: Homes That Were Once Lived In HSH Associates is the source.
National Ave. SURVEY REGULAR MORTGAGE PRODUCTS
30 Yr
- 51 percent
In our example, we will give the borrower a quote for a 30-year rate with a 30-day lock period. If we want to earn only a 1% origination fee and NO yield spread premium (back end fee), we will quote a rate of 6%. The rate sheet says that 6.000 percent really costs. Discount of 164% is paid to the lender, not to Integrity First Mortgage. On this rate sheet, a 6.000 percent interest rate is as close as we can get to a "par" price. As you can see, the next higher rate, 6.125 percent, makes a Yield Spread Premium of.267 percent, which is not a good thing. (YSP is shown in parentheses as (.267). So, in this case, look at the costs of a loan with us at a rate of 6%.
Rate: 6%, $200,000 Mortgage Loan x 1% Broker Origination Fee + 0.164 Discount = $200,000 x 1.164 % = $2,328.00
We'll now show you how everyone else does it! First, you should know that banks and brokers rarely give you the rate you'll end up with. Instead, they use low-ball rates and artificially low closing costs to get you to apply with them. Then, on closing day, the rates and costs are higher than you expected, but they say their Good Faith Estimate was just that—an estimate. Since the moving van is running in the parking lot, you sign. They count on the fact that you're trapped and have only one choice: to sign.
How can I be sure this is true? One reason is that for 15 years, people have been asked, "How did your last loan go? Were there any surprises when you closed?" About 85% of these people say "Yes" to this question. Second, every exit poll that Fannie Mae and Freddie Mac do at the end of the day shows the same results. But the HSH Survey data up above is the most convincing reason. It shows that the national average interest rate on closed loans was 6.51 percent for the week ending March 10, 2006.
(Note: HSH has a deal with the more than 2,000 people who took their survey to give them closed loan rates, not lobby rates or other teaser rates.)
I can promise you that none of those people signed a Good Faith Estimate at the time they applied that said their rate would be 6.5 percent, because that wasn't the rate that was advertised on the news, radio, and the internet in the 4-6 weeks before they applied. The loan officer for the bank or broker would have a hard time advertising a rate of 6% and then getting them to sign for a rate of 6.5 %. No one would agree to that. So they give them a rate of 6%, get them to sign, and then tell the borrower, either during processing or at the closing, that the rate had to go up. The loan officer will come up with a lot of creative ways to explain why this had to happen, but let's just say that this was always the plan. Now that we have this rate sheet, let's see how much they made.
Rate: 6.5%, $200,000 Mortgage Loan x 1% Broker Origination Fee +1.498 YSP = $200,000 x 2.4%, or $4,996.00
The banks and brokers can't stop overcharging for Yield Spread Premium because it at least DOUBLES their income from each loan.
With this tutorial and our daily updates to the rate sheet, you can now protect yourself from the worst consumer scam ever.
Best of luck!
