Great post DLG!  Thanks for the information that is sorely needed in this market!

Well, bless you Renee. Thanks for stopping by!!!

Tom...  I agree, great information. Something that I wrote about while you were away enjoying yourself on vacation.  ;o)   How dare you... lol   

One thing to be careful about though. Some of the bigger lenders... As PHH did and I am not sure if they still do this... but if you did a loan through them the previous year, up to a year, they will waive the title insurance. Some lenders are now eating this cost.... but it's rare. Most of what you mentioned is a ploy to get the phones to ring. It's called advertisements...   

Sorry Jeff.....

Are you suggesting that I read your blog before posting?!?!?!

;-)

are they really 'eating' it? Hmmmm.....

yes.... lol     And eating it?  With ketchup.

Tom,

LOL,

Us professioanals have to compete against what I call mortgage gimmicks all day long.  Great Post. 

Every time I hear the song "Dirty Little Secret" I think of how many LOs handle YSP.  In reality, yield spread premium can be a useful financial tool to help our borrowers.  Your post is a great example of how to put that tool to work - thanks!

We used to roll negative equity into the new loan all the time in the car business, including marking up the rate to cover the negative. My office mates were shocked at how natural this was for me. Negative equity in cars is the norm. We have only recently had to deal with in in real estate....

Jeff -   ;-)

Gary - Yes we do.

Tom - I guess the public thinks we can live on 1%

Janet - Yes, it is ugly. Good reason to put the client in the right loan the first time.

man , what a mess some people are in.

Awesome way to compete in this market.  Of course credit has to be there too - I guess that's what you call turning lemons into leomonade, eh?

Tom, Great post... Great way to educate people.. Oh by the way I did not write about this before so you don't have to read my post prior to posting yours.:-)

Tom, very detailed post with great information!  And I also did not write about this before!  LOL

Good post.  An interesting side note.........mortgage brokers have to disclose a YSP range and it shows on the final HUD.  Mortgage bankers, however, don't have to disclose the YSP and it does not appear on the final HUD at all.(In this state, at least)  Yes, it can certainly be used as a tool; so the broker can give a credit and it can really come in handy.

Scott: They were in a mess before.... now it is worse.

Matthew: whew!!

Kim: :-P

Seth: I am usually upfront with my clients about YSP or undisclosed SRP as we enjoy as a banker. Most people appreciate the upfront honesty

thanks for the comments everyone

and that's how it works folks!

good info...

good way to show how lenders are doing it..

and then there are the lenders showing very low rates with .25-.4 higher on the APR.... so they're backloading a bunch of fees... that's the other way!

If you have the ability to do it in the rate, it will be far less expensive over the 5-7yr short term than a high APR due to excessive bank fees

Thanks for the comment David:

I already had a wall of words here, so i really didn't want to get into comparing low fee, no fee, full fee and how it affects the rates.... or the breakeven analysis that we do to see what works for the client. This was a consumer article about how to avoid fees with a tight appraisal upon refi

I guess in a horrible situation such as this, the no cost closing loan is better than the adjustable rate mortgage.

I personally did several no-cost closing loans back in the days when interest rates were really low. No doubt I could have gotten the 3.75% adjustable rates, thank God I didnt buy into them. I finally settled to a 5.25% for 30 years (that's a no-cost loan). I believed I refinanced 3 times (again at no-cost). I was just merrily signing papers away..... down from my original loan of 8.25%....

Hi Loreena

The no cost loan has nothing to do with ARM or Fixed Rate. It is simply a higher rate in lieu of closing costs. Sometimes the closing costs are enough to blow the LTV ratio.... so we can do the 'no cost' to cure that problem.

Remember, there are STILL closing costs in the form of a higher rate. So you pay a portion of the closing costs every month in the form of a higher loan payment.

Low costs work for the scenario I described. They also work for those who plan on staying in the home a very short period of time. They are not for the long term borrower if it can be avoided.

I can give you another angle on this....

 Let's play what if. Leaving prepaid items and escrows OUT of the equation for a second.

$200,000 purchase,

Lender A) $1,000 in lender fees, $2,000 in origination, $2,200 in 3rd party fees 30 year fixed 6.375%

Lender B) $0 in lender fees, $0 in origination, $0 in 3rd party fees, $5,000 in discount points 30 year fixed 6.375%

So while lender B is offering a "no fee loan" it's only saving the consumer about $200. right? Isn't that kind of your contention that if the borrower wanted a "no fee" loan they would have a higher rate of interest OR have to buy that higher rate back down with discount points. So it's six of one, half dozen another.....right?

At least until tax time and the $5,000 in discount is treated as prepaid interest and eligible in the tax code for deductibility so the After Tax impact can be fairly significant. Over $1000 in real savings at a 25% tax bracket.....(keep in mind I am NOT a CPA so this is NOT tax advice but generally known and publicly available information about the tax code....always consult a CPA for tax advice :) )

I love the tool of putting all of the fees on the discount line.

Unfortunately, in my example, the client doesnt have the $5K nor is there room in the appraisal to roll it in.

I am not a CPA either. LOL

wel.......one man's 'tool' is another man's strategy. Being the lover of paying taxes that you are, Tom, I'm sure option A suits you best :P

Thanks for the great informtion. Your market is lucky to have this as an information resource.

Ken, I realize that B of A offers the "no fee" loan but you must admit that when Joe Borrower sees that advertisement he's not thinking that its just lender fees, origination and 3rd party fees that he wont be paying.  He is under the impression that there will be no additional costs above the amount being borrowed.  That's how the product is marketed to the public.  I think the average borrower would be a bit surprised when they see the GFE for their "no fee" loan and there is a $5000 line item for discount points. 

Ken,

I think what Tom is saying that there will be no discount fees.  He will use the higher yieldspread to pay the fees.  Think about it, as the broker, you would not charge origination / processing / application / etc.  because you are making more on the back end.

Then you would have to broker credit to pay the title fees.  I'm not sure that the lender would let you do that for escrows however. 

This would work great for that file that is really tight and $5,000 would make all the difference.  The borrower would just have to be made to understand why their interest rate is so much higher.

Great post Tom!  I will definitely keep this mind from now on.  It's something that I have always known in the back of my mind, but have never put to use.

Thank you Katie

I have done this many times on  purchases also.