Some things would be different, that’s for sure:
- There would be no prices on the menu.
- The exact same coffee drink sold out of the same location on the same day would be sold at different prices to different people.
- Employees would be trained and encouraged to maximize the gross profit on every cup of coffee sold by setting the price as high as possible for each customer.
- Employees would be incentivised to push the coffee that made them the most money, even if they knew the customer was allergic to it, enforcing a strict no refund policy.
- Coffees advertised as decaf would, in fact, pack more punch than a triple espesso.
How long do you think it would take the coffee giant to fall? Not long.
Now, flip it around: What do you think would happen if mortgage brokers ran their business like Starbucks? They’d have a line running out the door, too.
But alas, this isn’t the case. Instead, you have the Mortgage Cartel circling the wagons to protect their right to earn money the way they always have—taking it by farce.
Todd Carpenter of Lenderama and Loan Bark! posted an interesting piece on YSP and APR, making the argument that a borrower should focus on what they’re paying, rather than what the broker is making. Easier said than done.
I can appreciate his position that it’s nobody’s business what the broker actually makes, provided the borrower’s getting a “good deal.” However, defining a “good deal” is a highly subjective affair. It goes well beyond comparing the APR’s of 3 or 4 quotes and depends very much on who’s doing the evaluation. A borrower may have gotten the best deal of those presented, but wound up paying much more than they could have. Not just a few dollars more, mind you—but tens of thousands more.
Attempting to compare mortgage deals using percentage based methods is flawed. Brokers should put out a ‘menu’ of prices. Why?
- Rate Shopping/Quoting is a crap shoot. The problem here is even the best quote with the lowest APR out of the five brokers you’re shopping guarantees you nothing but the best deal between five brokers—all of which are looking at you as their next meal ticket.
- APR is directly tied to loan amount. Think about it: Where $5,000 in fees may be a significant increase between the underlying interest rate and the APR on a $150,000 loan, the same increase may seem trivial on a loan amount of $500,000. The point is, the difference in APR may appear negligible to a borrower on higher loan amounts, while the actual financial downside can be huge.
- Annual Percentage Rate. APR may be an easy way to compare the same deal from multiple brokers during the estimate stage, but unfortunately, by the time you make it from the initial disclosure to closing, that can change dramatically—and by then, it’s usually too late. Also, consumers tend to compare the APR to the interest rate they were quoted, if the APR is not much higher than the interest rate, consumers may mistakenly take this as the sign of a resonable deal.
If you haven’t figured it out by now, The XBroker is a staunch advocate of the 100% transparent mortgage transaction. This means truthfully disclosing every bit of YSP—down to the individual program, volume, and other bonuses offered by the lender.
My message rubs most Brokers the wrong way because they see me screwing with their earning potential. To them I say, if YSP is intended to be used to pay for closing costs—which is its expressed purpose—then they why does it keep turning up in the brokers pocket?
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Jeff,
Starbucks is hardly the paragon of virtue. They sell caffeine to teenagers disguised as slurpees, Their drinks "off the menu" are priced differently all the time. Employees are taught to "upsell" and maximize gross profit on every deal. I wish my shop ran like Starbucks!
I appreciate the message but you are grandstanding here.
1- Mortgage transactions are transparent right now.
2- APRs are a bad way to measure costs because they don't amortize to the expected payoff date.
3- Are there bad brokers who take advantage of the system? Sure. But the Xbroker transparency won't stop them. In fact, the scam guys will thrive under the Xbroker system. The bad guys never worry about disclosure