If you’re facing foreclosure there are viable options to get a clean start much faster. Let's face facts, lender are in the business of making money on the money they lend you. Lenders are not in the business of foreclosing on properties only to have those homes sit in their REO (Real Estate Owned) portfolio. Foreclosure proceedings are also very expensive.
So if lenders are not in the business of foreclosing on homes why do they foreclose? Simply put, they have no other alternative but you do. A great alternative to having your home foreclosed upon is a short sale. Simply put a short sale will allow you to sell your home for less then what's owed. Why would a lender allow this to happen? Well, the bottom line is that the lender stands to lose money regardless if they foreclose or accept a short sale but the lender is looking to minimize the amount they stand to lose.
If you are in facing foreclosure do to job loss, predatory lending or other reason looking into a short sale causes you no harm. Short sales are not the easiest thing in the world to do for many but rather easy if you are working with the right people. Who are the right people? Let's take a closer look.
New York (N.Y.) Real Estate Broker - You will need to list your home with a real estate broker in order to prove to the lender that you are not only attempting to sell your home but attempting to sell your home at fair market value, especially if the fair market value is much higher that what is owed on the mortgage. Think of this way....why would a lender accept a loss on a mortgage if they know that you haven't attempted to sell your home? Simply put, they won't and showing the lender a listing agreement with a real estate broker will help your cause. Also, real estate brokers may have clients who are willing and able to purchase short sale properties are looking for the right deal. Your home may be the right deal.
Purchaser/Buyer - Before a lender will even think about taking a loss on the mortgage they will require that not only have you attempted to sell your home at fair market value, but that you also have a party that is interested in purchasing your home. You will prove that you have a party that is interested in purchasing your home with a sales contract. In addition to the sales contact the lender will require a down payment to be made at the time of contract signing.
New York (N.Y.) Short Sale Negotiator - You will need a person or company to negotiate with the lender on your behalf to accept the short sale. However, as the short sale market has been increasing, especially in the New York City area, there are companies that are attempting to collect "consulting fees" from homeowners in distress. There is no need to pay a company prior to them doing anything. A real estate attorney will collect his or her fee directly from the lender. By working with a real estate attorney who specializes in short sale negotiations he or she will also help you complete and gather the necessary documentation that you will need to have your short sale go through. Then again, if the real estate attorney does not feel you have a good case for a short sale, he or she will not accept the case.
Let's take a look at a short sale example. Let's say you have a home worth $450,000 but owe $390,000 on the mortgage. You sign a listing agreement with a real estate broker to sell your home for $450,000. However, after a month on the market your home is still not sold. The real estate broker then lowers the listing price to $425,000 but yet again no offer. The real estate broker again lowers the listing price to $400,000 and now potential buyers are interested in purchasing your home. However, the highest bid your real estate broker receives is $350,000 which means that after paying your New York State and City transfer taxes, and real estate commission you will not have enough money to satisfy the mortgage. This is one possible short sale example.
In the alternative, a short sale will be much easier to complete if you owe more on the mortgage then the home is actually worth. Again using the above example, let's now say that your home is worth $450,000 but you owe $490,000 on the mortgage. No one in their right mind is going to pay your more than what your home is worth. If you cannot afford the payments on the mortgage, for whatever reason, you obviously cannot sell the home for fair market value as you are already upside down in the amount of $40,000.
Having your previous mortgage report to credit as "settled for less then full amount" as opposed to "foreclosure" will allow you to get your credit standing and life in order much quicker. Let's face fact, things happen in life that are often times out of our control. Losing a home to foreclosure is happening across the country. There's no need to feel bad about it but if you feel a need to get it all behind you sooner then later here's why you should contact me.
Although I am a New York mortgage broker, I'm also a licensed New York real estate agent with Diverse Real Estate Corp. in Middle Village, Queens. My mortgage broker, James Turano has been in the real estate industry in New York City for over 25 years. We have potential buyers that are willing and able to purchase your home via short sale should we not be able to sell your home at fair market value.
We also work closely with a real estate attorney firm that specializes in short sale negotiations. As I wrote earlier, the lender will be paying their fee.
If you would like more information on New York (N.Y.) short sales, you may contact me at any of the following numbers.
New York Mortgage Broker - Anthony Torres of Diverse Funding Solutions, LLC (917) 650-6042
New York Real Estate Agent - Anthony Torres of Diverse Real Estate Corp. (718) 669-7007
I will provide you with a no cost in home or telephone consultation.
Once again the federal government is trying to step in and make new rules to regulations that, for the most part, are already in place. However, should these rules actually becoming part of the current regulations, the mortgage broker industry as well as the real estate industry will be further weakened.
Highlights of Proposed Rule to Amend Home Mortgage Provisions of Regulation Z
The proposal would establish a new category of "higher-priced mortgages" that should include virtually all subprime loans. The proposal would, for these loans:
Prohibit a lender from engaging in a pattern or practice of lending without considering borrowers' ability to repay the loans from sources other than the home's value.
Prohibit a lender from making a loan by relying on income or assets that it does not verify.
Restrict prepayment penalties only to loans that meet certain conditions, including the condition that the penalty expire at least sixty days before any possible payment increase.
Require that the lender establish an escrow account for the payment of property taxes and homeowners' insurance. The lender may only offer the borrower the opportunity to opt out of the escrow account after one year.
The proposal would, for these and most other mortgages:
Prohibit lenders from paying mortgage brokers "yield spread premiums" that exceed the amount the consumer had agreed in advance the broker would receive. A yield spread premium is the fee paid by a lender to a broker for higher-rate loans.
Prohibit certain servicing practices, such as failing to credit a payment to a consumer's account when the servicer receives it, failing to provide a payoff statement within a reasonable period of time, and "pyramiding" late fees.
Prohibit a creditor or broker from coercing or encouraging an appraiser to misrepresent the value of a home.
Prohibit seven misleading or deceptive advertising practices for closed-end loans; for example, using the term "fixed" to describe a rate that is not truly fixed. It would also require that all applicable rates or payments be disclosed in advertisements with equal prominence as advertised introductory or "teaser" rates.
Require truth-in-lending disclosures to borrowers early enough to use while shopping for a mortgage. Lenders could not charge fees until after the consumer receives the disclosures, except a fee to obtain a credit report.
Doesn't seem to bad if you quickly review the above information, but I take exception to the following.
Prohibit a lender from engaging in a pattern or practice of lending without considering borrowers' ability to repay the loans from sources other than the home's value.
How could this possible be a bad thing? Well no where in the proposal does it state the length of time a lender must consider a borrowers ability to repay the loan. Is it 1 year, 2 years, 3 years, 25 years? The proposal also states that a borrowers ability to repay does not have to be entirely based on the borrowers income. So for example, a college graduate who has been working for two years in his or her field of study can be found to reasonably obtain a raise in the future so that can be taken into consideration as future ability to repay.
A borrower with a 75% debt to income ratio can be approved if that person has enough assets to substantiate repayment of the loan for a yet to be determined length of time. If a lender is required to substantiate the borrowers ability to repay the loan for say 5 years, this person can have enough liquid reserves to pay the loan back for the next 10 years. Should this person actually be able to obtain a loan even though 75% of his or her pre-taxed income is being used to pay the mortgage.
Lastly, other housing expenses in addition to the mortgage payment, taxes and insurance are to be taken into consideration when the lender is making their detrmination on the borrowers ability to repay the loan. Now what exactly would those other expenses be? Do we have to look at the average cost of electricity, obtain documentation from the borrower with regard to their average monthly expenditures on groceries, and find out the average monthly cost to heat the home?
Require that the lender establish an escrow account for the payment of property taxes and homeowners' insurance. The lender may only offer the borrower the opportunity to opt out of the escrow account after one year.
I've never been a fan of the escrow account and normally advise my clients not to escrow for taxes and insurance. I'm sure everyone reading this has probably had a bad experience with their own lender or had a friend whose mortgage lender dropped the ball when paying an insurance premium or property tax payment. In addition, requiring escrows at the time of closing increases the settlement fees at the time of closing. This is not a big deal in some areas but a major deal for places like New York City where property taxes in some counties are $8,000 - $12,000 per year. If the lender requires 3 months of reserves for property taxes and 3 months of homeowners insurance be taken in advance at the time of closing, a person in New York or other "high cost" area will have to spend anywhere between $3,000 to $7,000 more for settlement fees. This is not in the best interest of the consumer but in the best interest of the mortgage lender.
Prohibit lenders from paying mortgage brokers "yield spread premiums" that exceed the amount the consumer had agreed in advance the broker would receive. A yield spread premium is the fee paid by a lender to a broker for higher-rate loans.
Left out of this bullet point is the sentence contained in the actual proposal that states that the agreement on compensation must happen prior to the application. How exactly can I come to an agreement on my compensation with a client prior to taking an application? My clients know exactly how I get paid and what they are paying for m service. To come to an agreement on compensation prior to even knowing how much work will be involved or even if an application can be approved is just absurd. Notice that this proposed rule does not include mortgage originators who work for lenders. Mortgage brokers will be required to negotiate their fee prior to the application but a mortgage originator working for a lender can still earn an override in the form of SRP or service release premium. How long will it be before mortgage brokers start advertising "I'll write you loan for only $99.95."?
Prohibit a creditor or broker from coercing or encouraging an appraiser to misrepresent the value of a home.
Did I miss something or is there not a new law going into effect on Janaury 1, 2009 that states that mortgage brokers and mortgage lenders cannot order an appraisal directly from the appraiser. If we are forbidden from having contact with the appraiser, how exactly would a creditor or broker coerce or encourage an appraiser to "hit a number"?
Require truth-in-lending disclosures to borrowers early enough to use while shopping for a mortgage. Lenders could not charge fees until after the consumer receives the disclosures, except a fee to obtain a credit report.
Truth in lending disclsoures are currently required to be provided to an applicant within three days of the date of application. Taking a fee prior to disclosing is just bad business although there are people who do it.
Of course, this is a bit of a rant posting but there are pages upon pages contained in the 298 page proposal that are quite disturbing. Should these proposed rules become part of the regulation it will not help as much as compund the problem the mortgage and housing industries are now facing.
Once again it appears that the federal government is masking an attempt to "protect" consumers as much as it is attempting to further regulate mortgage brokers in an ultimate attempt to destroy the mortgage brokerage industry.
To view the proposal you can visit http://www.federalreserve.gov/boarddocs/meetings/2007/20071218/reg%20z%20draft%20federal%20register%2012-18-07.pdf
I truly believe that this will be the next great think for real estate agents and brokers alike, the Purchase CEMA. What exactly is a CEMA? A CEMA is a Consolidation, Extension Modification Agreement or simply put, a way for buyers to save thousand of dollars on New York State Mortgage Tax.
Whether you've ever sold a home or purchased a home in New York you've paid the dreaded New York State mortgage tax, that annoying tax that differs from county to county. In the 5 boroughs of New York City the mortgage tax costs 1.80% minus $25 of the amount of the mortgage up to $499,999. Even more for loan amounts above of $500,000 and above. Now, how can a purchase CEMA help in what is a tough NYC market? Let's look at some numbers.
Say you have a buyer who is purchasing a home for $500,000 and is making a 20% down payment in Queens County. The buyer would be obtaining a mortgage for $400,000. The state mortgage tax would be $7,175. Now let's take a look at how a CEMA can help.
Let's say the seller currently has a mortgage on the home for $350,000. Utilizing a CEMA the buyer would have to pay the mortgage tax on the spread between his/her mortgage amount and what the seller holds on his/her mortgage. Now, instead of the buyer paying mortgage tax on $400,000, the buyer is now paying mortgage tax on the $50,000 difference or $875. The buyer is now paying $875 in mortgage tax as opposed to $7,175 for a savings of $6,300. However, there are costs associated with a purchase CEMA of approximately $1500. The cost could be a bit more or a bit less depending on what the sellers' mortgage company and buyers' mortgage company will charge for the preparation of the necessary documents. In this example, factoring in the costs, the buyer would be saving approximately $4,800 or paying $2,375. Do you think a buyer would be unhappy having to pay $2,375 instead of $7,175?
Hey Anthony, that's great but what's in it for the seller? In addition to now potentially having more buyers since there are less out of pocket costs for buyers, the seller can also save a few dollars as well. The seller can save on the New York State Transfer Tax they have to pay at closing as well. Using the above example, the seller would have to pay $2,000 in New York State Transfer Tax on a sales price of $500,000. Since the seller is now assigning their mortgage, the seller now only has to pay the tax on the difference between the sales price and the amount of the mortgage they are assigning. Again, using the above example of a sales price of $500,000 where the seller has a mortgage of $350,000, the seller is paying the tax on $150,000 instead of $500,000. The seller is now paying $600 instead of $2,000 and saving $1,400.
The buyer saves $4,800, the seller sells his/her home and saves $600, you have a sale and everyone is happy. Sounds easy, doesn't it? Well not quite. First of all, everyone has to be on the same page. The seller must be willing to help the buyer, the sellers' mortgage company must be willing to assign the mortgage tax, the buyers' mortgage company must be willing to accept the assignment, and the title company must be on board as well as the buyers and sellers attorneys. Most importantly, the person taking care of the purchase CEMA must be knowledgeable and have experience. If done correctly, you can expect a 90% success rate. However, it's important to look at all the numbers as there will be times when the savings on a CEMA are minimal and may not even be worth doing.
It's important to partner with someone who knows what they're doing, whether or not a purchase CEMA can be done and whether or not if it will be beneficial to have it done. If you need any more information on how to use purchase CEMA to increase your listings or are looking for a purchase CEMA partner to increase sales, feel free to contact me through my profile, call my office at 718-381-2424, or call me on my cell at 917-650-6042.
In November of last year Washington Mutual and eAppraiseIT were named in a law suite by New York Attorney General Andrew Cuomo. The suite basically stated that Washington Mutual pressured eAppraiseIT to inflate appraisals in order to write more loans.
Now let's fast forward to this month. Fannie Mae and Freddie Mac agreed to only purchase mortgage loans from lenders who use independent 3rd party appraisers. Fannie Mae and Freddie Mac will put up $24 million to create the Independent Valuation Protection Institute that will take complaints from consumers and appraisers and will report to Andrew Cuomo as wells as OFAC - Office of Federal Housing Enterprise Oversight.
Lenders will no longer be able to be affiliated with Appraisal Management Companies and select an appraiser on their own. Countrywide Home Loans, for example, will basically have to close or sell their Landsafe Appraisal Management Company. In addition, real estate agents, real estate brokers and mortgage brokers will no longer be allowed to order an appraisal.
So let me get this straight.... a direct lender gets sued for pressuring real estate appraisers to inflate appraised values and now mortgage brokers cannot order appraisals effective January 1, 2009????? As a mortgage broker I'm fully aware of our public perception and the blame placed on my industry due to the mortgage meltdown. I guess at this point it really does not matter as to whose felt it really is. It's now super clear...."IT THE MORTGAGE BROKERS FAULT."
This will certainly hamper mortgage brokers' ability to operate. When an appraisal is performed and Lender A does not like a file for one reason or another I can use the appraisal to submit the loan file to Lender B. Although it's still unclear as to how the appraisal process is going to be handled in the future, a mortgage broker not having the ability will certainly hurt our ability to operate.
For example, if the appraisal is certified to the lender with whom the broker submitted the loan to what will happen if the lender declines the loan? Will the borrower have to pay for another appraisal? I strongly feel the appraisal profession will be hurt by this as well. For example, as mortgage brokers will no longer be able to work directly with real estate appraisers, what is going to happen to those real estate appraisers who receive a majority of their work from mortgage brokers?
Once this goes into effect I can see the appraisal industry shrinking the way the lending industry has over the course of the last year. With the increased legislation and regulation placed on the mortgage brokerage industry it makes this mortgage broker fearful of what the future holds for the industry.
Whether you're in the real estate or mortgage industry, there is always one constant. Are there any new ways to market and network available?
Let's face it, real estate agents attempt to network and establish relationships with mortgage originators, real estate appraisers, title companies, real estate attorneys and more. Mortgage originators attempt to network and establish relationships with real estate agents and brokers, real estate appraisers, title companies and more.
If you're a top producing agent I'm sure you get a ton of cold calls from rookie mortgage originators trying to solicit business from you. If you're a top producing mortgage originator you probably get tons of solicitations from rookie real estate agents.
Networking and establishing relationships is an integral part of any business but more so in the real estate and mortgage industries as relationships is what drives our business and directly relates to how successful or unsuccessful we are.
I was looking for a new way to market my mortgage services so I did a web search and came across OriginatorNation.com. OriginatorNation.com calls itself "The Mortgage Market Networking and Solution Portal." The site although centered on mortgage originators will provide user accounts to real estate agents, real estate appraisers, title companies, real estate attorneys, notary publics and more.
The main idea behind the site is to create a networking portal for those who want to network. For example, if I post my information on the site, I'm telling the rest of the user base to contact me with any special product offerings or services they have. The best part of it is that I get strong leads and quality service offerings without taking any phone calls anymore. I can simply add "Contact by email only". And let everyone know that I only want to communicate by email for the time being.
It's hard to say whether or not OriginatorNation.com will catch on but social networking sites have worked well in other industries. If you're in the mortgage industry and or real estate industry and looking for a new way of marketing your company and to network, I suggest checking out http://www.originatornation.com. After all, it's always great to hook up with the pros instead of being stuck with the "same-old" in our industries.
Yet again an inaccurate article has been written about the mortgage brokers role in the mortgage meltdown. This time it's a man by the name of Ralph Roberts who wrote an article for realtytimes. com.
It has to be one of the most offensive and innacurate articles about mortgage brokers I have read in some time. Below is an email that I wrote to Mr. Roberts in response to his error filled article.
------------------------------------------------------------------------------------------------------------------------------ Mr. Roberts:
I am writing to notify you of the glaring errors contained in your article "The Truth About the Mortgage Meltdown", which I read on realtytimes.com.
"When someone borrows $300,000 to purchase a home, for example, the broker receives 2 points at closing for a total of $6,000. They then package the loan with other loans and sell it to the market at 104 percent, or $312,000. In this case, the originator just "earned" $18,000 off the mortgage loan -- the $6,000 commission plus the $12,000 markup."
Mortgage brokers do not package loans. Mortgage bankers package loans as you described above. Mortgage Brokers are compensated in one of three ways. We are compensated by the lender, by the borrower, or in combination by both the borrower and the lender.
"In the current system, most banks rely on brokers to originate the mortgage loans. These brokers typically have loan officers who work for them and are in charge of selling loans to consumers, helping the consumers fill out their loan applications, and performing other tasks to expedite the loan process. Loan originators receive a commission for every loan that's approved, and because they are lending someone else's money, they take on risk only indirectly."
Loan originators receive a commission on loans that fund not when a loan is approved. A loan approval means nothing and often times many loan originators work with clients for months and receive no compensation. We are not lending someone else's money. We are a third party facilitator that matches a qualified borrower with the wholesale lending institution that will provide the best possible loan for that borrower.
"When bad loans are traced back to mortgage fraud, misrepresentations, and misdeeds, originators takes a double hit. They are forced to buy back the bad loans, and the lender cuts off access to future transactions. With huge chunks of money flowing out and little or no money flowing in, the mortgage originator is forced to close up shop. That is what is currently happening and why we are now seeing a mortgage meltdown."
The title, mortgage originator, is classified as a person who originates mortgages for a mortgage broker or mortgage banker. Your article seems to be pointing the finger at mortgage brokers yet you use the term "mortgage originator." Your description of a mortgage broker actually refers to description and function of mortgage bankers. In fact, I cannot even tell what you are attempting to write.
"MILA, a subprime wholesale lender that was based in Mountlake Terrace, Washington shut down during the spring of 2007, primarily due to the fact that its loan officers were responsible for huge numbers of fraudulent loans. Several employees who refused to go on the record reported that they passed along proof of fraud committed by at least one of the company's loan officers. This person made so much money for the company that instead of firing its employee, MILA relocated and promoted the person."
A wholesale lender does not have loan officers. Wholesale lenders employ account executives who are compensated by their lending institution. If this wholesale account executive was committing fraud it was not fraud being committed by a mortgage broker. MILA would function in the capacity that you describe to be a mortgage broker. Are you know saying that the mortgage meltdown was attributed to wholesale lenders? If so, I thought the mortgage meltdown was attributed to mortgage brokers?
I strongly suggest you stick to writing about, coaching and selling real estate as that's what it seems you do best. You are obviously not educated about mortgage finance as if you were, you would not have been so careless in writing this article today. Individuals, such as yourself, do nothing but misinform the public about the industry and compound the issues we mortgage brokers face daily.
I eagerly await your response but highly doubt you will respond.
As a mortgage broker I have become increasily frustrated with the amount of articles found with misinformation provided by individuals via the internet. The recurring theme is that none of these "authors" have knowledge or first hand experience about what they're writing about.
There has been great buzz over the use of online video to promote the sale of real estate. You can go into the video section of the major search engines and literally find hundreds of real estate videos on any given day. Why is this method of marketing catching on with real estate agents as well as individuals selling their homes by owner?
Firstly, any real estate veteran will tell you the first two weeks a home goes on the market are the most crucial. If there is little to no initial interest from potential buyers during the first two weeks many feel that there will be a long road ahead. Many online video marketers, including your truly, have proven that by carefully selecting keywords to use during the video submission process, top search engine results can be achieved for those keywords within 24 to 48 hours. Of course the length of time your video is able to maintain those results will be contingent on the popularity of the keywords but for mid level keywords it has been my experience that the videos will have top 20 results anywhere from 1 to 2 weeks. Having a real estate video appear in the top 20 results of the major search engines for 1 to 2 weeks provides additional exposure during the most crucial period of marketing.
Secondly, real estate videos are inexpensive when compared to other means of advertising. There are products on the market that will allow one to create slide show video for under $50 per month. You can utilize royalty free music or utilize a toll free number in which you can record a voice over by telephone. If you feel that a slide show video may take away from the presentation value of the property you can always utilize the services of a videography professional. While researching I came across professionals who would create a video as well as provide professional voice over services for as little as $250. For a cost of anywhere from $50 to $250 you wind up with a lot of bang for your buck.
Lastly, opponents of real estate video marketing love to state you will not receive much traffic from the search engines or the various video sharing communities as there are not many people actively searching for real estate on those sites and the search engines. I counter this point by saying even if a video only provided 30 views during a 2 week period, that's 30 more people your property was exposed to then you would have had otherwise. In addition, there are new video sharing sites being created that are entirely dedicated to sharing only real estate videos.
For a great tips on how to generate sales leads through video marketing and how to create inexpensive slide show videos utilizing royalty free music or toll free number for a voiceover visit http://www.videogeneratedleads.com/
If you have real estate videos or know of anyone who utilizes this method of advertising, visit http://www.realestatehometours.tv/ for a video sharing site solely dedicated to real estate.
There are many benefits of working with a mortgage broker, whether you're looking to purchase a home or refinance your existing mortgage. Many incorrectly think that the only benefit of working with a mortgage broker is that the mortgage broker will be able to shop for their loan with various lenders.
There are many benefits of working with a mortgage broker, whether you're looking to purchase a home or refinance your existing mortgage. Many incorrectly think that the only benefit of working with a mortgage broker is that the mortgage broker will be able to shop for their loan with various lenders. Although this is a benefit, the benefits of working with a mortgage broker goes beyond this point.
As a New York Mortgage Broker I ask all of my potential clients what they feel the benefit of working with a mortgage broker is. The number one response that I receive is that I work with many wholesale lenders. However, many fail to realize that part of working with many wholesale lenders also provides me with wholesale mortgage rates. A reputable and ethical mortgage broker will pass along his or her wholesale mortgage rates directly to their client. In addition, a good mortgage broker will be able to provide the customer service and support that is not normally provided at large institutional lenders. As a mortgage broker I provide all of my clients with my cellular phone number so that they may call me to address any questions or concerns they may have with their mortgage financing.
Below are some of the benefits one can expect to receive by working with a mortgage broker.
Various Lenders to Place Your Loan With - A direct lender can only offer mortgage programs they have available. Mortgage brokers often work with many wholesale mortgage lenders thus providing you with more options.
Wholesale Mortgage Rates - Mortgage brokers receive wholesale mortgage rates. A good mortgage broker will pass their wholesale pricing onto you.
Personal Attention - Mortgage brokers normally go above and beyond what they large institutions will provide with regard to customer service. Expect a good mortgage broker to provide you with a way to contact him or her when their not in the office.
Speed and Efficiency - A good mortgage broker will have pre-established relationships with key parties at various wholesale lending institutions. Often mortgage brokers will be able to provide you with faster service and a much smoother closing.
Now that you've read about the benefits of working with a mortgage broker, please consider utilizing the services of a mortgage broker if you're looking to purchase a home or refinance your current mortgage.
Mortgage brokers are compensated in one of three ways. A mortgage broker can be compensated by the lender in the form of yield spread premium, by the borrower or a combination of compensation from the lender and compensation from the borrower. In this article I will discuss each way a mortgage broker can be compensated.
Mortgage brokers are compensated by the borrower in the form of a mortgage broker fee. A mortgage broker fee is a percentage of the loan amount a mortgage broker will charge the borrower for arranging the mortgage loan. As in any service industry, mortgage broker fees will vary depending on how difficult the mortgage broker perceives the mortgage financing to be. As a mortgage broker in New York, my standard fee for a mortgage loan for a borrower who wishes to compensate me directly is normally 1% of the loan amount I am arranging.
Mortgage brokers can also be compensated in the form of Yield Spread Premium. Yield Spread Premium has often incorrectly been referred to as a legal kickback between the wholesale mortgage lender and the mortgage broker. However, yield spread premium is actually the difference or spread between retail mortgage rates and the wholesale mortgage rates the mortgage broker receives from the wholesale mortgage lender. For example, when I have a client who does not want to pay a mortgage broker fee I will not charge a mortgage broker fee but rather be compensated by the lender in the form of the interest rate that I will obtain. Many times it will make more financial sense my clients not to pay a mortgage brokerage fee but rather take a slightly higher interest rate.
Lastly, a mortgage broker can be compensated partially from the wholesale mortgage lender and partially from the borrower. For example, depending on the needs of the borrower, he or she may choose to pay a reduced mortgage brokerage fee and take a slightly increased interest rate so that the mortgage broker can be compensated. However, as a New York mortgage broker I am rarely compensated in this manner. I have found it to be most beneficial to my clients to either pay a mortgage brokerage fee or take a slightly increased interest rate so that I may be compensated.
As in other service related industry, if you would like to utilize the services of a mortgage broker be advised that the mortgage broker needs to be compensated for the services he or she will be providing to you. Much like an accountant, financial advisor, mechanic or any other service provider is compensated for the services they provide to you. When utilizing the services of a mortgage broker be sure that your mortgage broker reviews all of your options and the exact manner in which he or she will be compensated for their services.
Consumers will soon have Congressman Barney Frank to thank for higher cost loans should HR3915 pass. HR3915 is an anti predatory lending bill that if passed, will make the payment of yield spread premium to mortgage brokers illegal.
As a mortgage broker, I often write loans for clients where they are not paying a mortgage brokerage fee as it's not in the best interest for them to do so. In this situation I am compensated through yield spread premium. Often the difference in interest rate is minimal and the borrower's situation must be taken into account when deciding on a mortgage program.
As an example, let's say I have a client who is purchasing a home that he's not in love with. He's getting a really good deal on the home and figures he'll live in the property for 2 years sell the home and use the proceeds to purchase a home he truly wants at that point in time. I go back to my client with the below loan options.
Option 2 - $200,000 Loan 1 Point 6.50% 30 Year Fixed Rate - Monthly Payment = $1,264.14
The difference in monthly payment between Option 1 and Option 2 is $49.72 per month. However, With Option 2 the client would have to pay 1 point equaling $2,000. By dividing $2,000 by $49.72 we arrive at a number of 40 months to recoup the cost of the point. 40 months = 3.33 years of payments.
Should my client choose option 2 and sell his home after 24 months like he plans he would be losing $806.72. Should HR3915 pass into legislation, my client would be forced to pay a mortgage brokerage fee as opposed to allowing the lender to compensate me through the interest rate. In my opinion, HR3915 is not so much an anti predatory lending bill as much as it is an anti mortgage broker bill.
My ability to be compensated by the lenders allows me to provide more financing options to my clients. Without yield spread premium, all clients of mortgage brokers would be forced to pay mortgage brokerage fees. Our competitive advantage would be non-existent allowing us to do nothing for our clients other than shop their loans to our wholesale lenders with no advantage on pricing and provide higher cost loans. HR3915 will also not allow us to assist our clients with closing costs by crediting a portion of the yield spread premium back to the client.
How long will it take the large mortgage lenders to realize that they no longer need mortgage brokers and close up their wholesale channels? How long will it take consumers to realize that the major benefits of working with a mortgage broker are no longer available? Retail mortgage lenders will still be able to charge origination points as well as continue to make their pockets fat through service release premium. No mortgage brokers will fall just short of creating a monopoly on the mortgage industry by the large retail lenders.
Regardless if you are a mortgage broker, consumer, real estate appraiser, real estate broker or real estate agent HR3915 will not be good for any of our industries should it pass. Less financing options will equate to fewer buyers, less sellers and weaken our respective industries.
The purpose of this blog is to educate and disupute some common misconceptions relating to the wonderful world of mortgage finance. Of course, I will ocassionally utilize the blog to vent some frustrations as well.
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
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