HOW DO MORTGAGE BROKERS GET PAID?

By
Mortgage and Lending with D A Griffin Financial.LLC NMLS 6380
http://activerain.com/droplet/zPp

HOW DO MORTGAGE BROKERS GET PAID?

How I get paid comes up early on in a conversation with a home loan applicant.

Mortgage brokers are paid by either a consumer or by a lender, but not by both. Prior to April 2010, mortgage brokers could get paid by a combination, but the loan officer compensation rule that went into effect on April Fools Day put an end to that. 

When a lender accepts a loan from a mortgage broker they pay "yield spread premium" or YSP. A mortgage broker is required to disclose to the borrower the gross amount of money (YSP)  the firm is making on a transaction. This is done on the good faith estimate and in many cases additionally on other forms. Whereas the disclosure method changed, actual disclosure is not new; mortgage brokers have for decades disclosed their gross income.

Yikes! You are making that much money!!!!   No, would be nice, but the company earns that much money. From that we pay operating costs and finally the originator.

While mortgage brokers disclose the gross income on a loan, bankers do not. They are not required to inform the borrower of how they are paid and how much they are paid. They can be paid on interest the loan earns, the origination of the loan and the sale of the loan in the secondary market where they receive service release premium (SRP).

Since the above information is not disclosed, it can be confusing when a consumer is comparing options. As a mortgage broker my firm's income is shown on the good faith estimate as part of the origination cost of the loan. For a banker income is NOT shown anywhere on the good faith estimate.

A common thought would be "why would I pay a mortgage broker $$$$ income and a bank zero income?".  In reality the mortgage broker's income portion of the origination cost is shown, then backed out in a subsequent box. An exercise that, in my experience, most consumers find confusing.

Mortgage brokers compete with bankers for business because they can offer competitive interest rates and costs. How do they offer competitive rates?

A mortgage broker is provided wholesale pricing from lenders who want business from the broker. The benefit to the lender is they (a) have a market share they otherwise would not, perhaps due to geography and (b) they have the benefit of the market share without having to spend money for overhead, such as an actual office, personnel, licensing, insurance, supplies, taxes, etc.

How mortgage brokers are paid is simple enough to explain. What is not so simple is why there is a difference in disclosure between the banker and mortgage broker.

I can't help but compare the income question to any purchase a consumer makes. Normally a consumer shops for a product and knows what is a fair price. They don't need to be told how much money the wholesaler made on the product before it hit the retail shelf. It has no bearing on their decision. This is not unlike mortgage loans when a borrower will make a decision based on the criteria that is important to them.

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Topic:
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Location:
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Groups:
Wake Up Brokers
Mortgage Professionals
Mortgage Brokers
Loan Officers - The tough nut to crack
Mortgages
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Rainmaker
1,129,101
Jeff Jensen
The Federal Savings Bank/Lending in 50 states - Greenwich, CT

We do most of our loans as a correspondent lender.  As a result, we do not have to dislcose our premiums.

May 07, 2012 07:13 AM #1
Rainmaker
191,857
Dora Griffin
D A Griffin Financial.LLC - Fort Thomas, KY
NMLS 6380

You guys are the lucky ones, Jeff. Some days I envy  you. So much paperwork these days, and it really confuses the borrower.

 

May 07, 2012 07:16 AM #2
Rainmaker
2,244,291
John Pusa
Berkshire Hathaway Home Services Crest - Glendale, CA
Your All Time Realtor With Exceptional Service

Dora - Thank you for sharing detailed quality information on how do mortgage brokers get paid.

May 07, 2012 09:11 AM #3
Rainmaker
2,098,493
Joe Petrowsky
Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709 - Manchester, CT
Your Mortgage Consultant for Life

Nice job in sharing a somewhat confusing issue, but as you said, once explained properly, becomes a non issue.

The crazy part of my business, 25% of my revenues comes fom banks and credit unions that refer clients to me, beause of loans they can't do or just don't know how to do. This has been part of my mortgage practice for many years, because of business I send to them.

There are certain mortgages that they do better than I can, which is better for my clients.

May 07, 2012 08:13 PM #4
Rainmaker
191,857
Dora Griffin
D A Griffin Financial.LLC - Fort Thomas, KY
NMLS 6380

John, thanks for the comment. I think it is important for real estate agents to understand because they are often asked by their clients for direction. Whereas they cannot steer someone to one source or the other, it would be good for them to  understand.

May 07, 2012 11:47 PM #5
Anonymous
Lisa

This was a very well written, understandable article.  Most of the time it is hard to understand what the person is saying.  Good job.

Mar 22, 2013 08:09 AM #6
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Rainmaker
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Dora Griffin

NMLS 6380
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