It was about eighteen months ago that a friend of a friend called to ask if I would glance at a settlement sheet. Chris, a busy woman executive, was scheduled to close a refinance loan the next day and sensed that something wasn't quite right after learning the amount of her new (proposed) monthly payment.
Chris, I later learned, had responded to a letter sent to her house by an industrious mortgage broker. Her intentions were to lower her interest rate while pulling out a little cash. It sounded reasonable enough considering Chris' lending profile. She is highly educated and a successful executive for an international spice company. I'd been to her waterfront home once, or twice, for parties and knew that it had to be worth more than a million dollars. A loan amount of $450,000 certainly seemed non-problematic to me. Also, Chris struck me as the type of person who would maintain an impeccable credit rating. As it turned out, I was right!
At first blush, the HUD-1 appeared heavily laden with fees. There were a couple of points showing along with a generous display of junk fees. Most disturbingly, the broker was walking away with a yield spread premium (YSP) that totaled $19,000. I asked Chris for permission to discuss her loan with the loan originator.
Initially, the woman was congenial and talkative. She became defensive only after I questioned the YSP. I suggested to Chris that she post phone closing until someone could explain why she was paying a premium spread. The next day, I heard from the loan originator's manager who accused me of trying to steal the deal. It was, of course, a ridiculous and unfounded accusation. I am nothing more than an unlicensed industry observer these days.
But, make no mistake, I've been around this business long enough to know when someone is being screwed.
A long story short, Chris settled about two weeks later with a different mortgage broker. The fees and charges came to $4,000 or so. The interest rate was much lower than that proposed by the original broker. There was no YSP charged.
Do I believe that mortgage professionals are deserving of their fees?
I do, but there are limitations to reason.
Repeated studies have concluded that women with above average incomes and credit scores are likely to pay more for mortgage money than men with less favorable lending profiles. Women of color are most likely to suffer lending abuses and least likely to realize financial security through the traditional path of homeownership.
The YSP is almost always a factor when predatory lending practices are at play.
I reluctantly accept the need for the YSP in residential transactions. It is of considerable value to homeowners when employed by honest, well-intended loan professionals. We know, regrettably, that this is not always the case and that the YSP is all too often used to victimize trusting consumers.
I'd like to make this post a bit more interesting by asking a hypothetical question!
Let's assume that I was still a title company owner and didn't know Chris personally.
Let's also assume that the loan was referred to my title company by the original mortgage broker that attempted to charge a $19,000 YSP.
As a licensed title professional: Did I have an obligation to the consumer to question the obviously exorbitant fees being charged?
Would it have been inappropriate for me to question the fees?
What's your professional opinion?
The original post read: Do I believe that real estate professionals are deserving of their fee?
I decided to make the question more specific by revising "real estate professionals" to read "mortgage professionals" because the generic nature of the phrase was questioned by a number of readers.