My new title will be Non-Profit rep - Thanks to the Dodd-Frank Act

Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc

big government vs little guy


It's bad enough that some loan officers, aka MLO (mortgage loan originator), make less than what they should on a borrower for several reasons.

Examples :

1.) If I spend countless days and hours helping someone work on their credit instead of them going to a credit repair person that could charge from $500 to $1,000. And just by helping them, this is already included in my total pricing, and is just another part of my service to my borrower's.

2.) Or if some issues come up to where the borrower doesn't have some of the money for closing now and or has to pay off something, I will dip into my profit margin to make the deal work.

Where am I going with all of this? It's about the big guy, aka the government, pushing out the small guy who wants to help out the consumer. Can we say conspiracy, that the big banks might have a hand in this? Possibly, but that is not my argument here.



Janet Guilbault wrote this excellent post :

You, Me, and the YSP: Dirty Rotten Kickback or A Borrower's Best Friend?

This post couldn't be more spot on and you need to read her post before you continue on with mine, to get the best understanding of what I am about to talk about. In the cliff notes version, Janet talks about the Dodd-Frank act that will abolish YSP, which is yield spread premium. Truly understand what YSP is and what it can be used for, before you state that it's just another way for lenders and or loan officers to make more money. From wikipedia - Yield Spred Premium


Janet mentioned a few things on how taking away the YSP could hurt the consumer. The biggest ingredient/issue? More cash required to close for the borrower. My other complaint is that it could hurt those buying properties of $100,000 or less or those that are strapped for closing costs to begin with. Before I continue, I don't want the debate about people needing more money to buy or more skin in the game. I have written about this and that is another subject.. so thanks


Let's break down a few scenarios.... Scenario #1, the total profit margin is $4,500, for both the company and the loan officer combined. Scenario #2 is $4,400. In both scenarios, I am not including the cash needed for the down payment. Assume that the down payment is already covered.


Scenario #1

yield spread premium example

So as we can see, you have $500 left over. Sorry, but I am a firm believer that cash is king and that you should have a few months reserves, if not, more. So what does having $500 do for you when buying a new home? I wrote this series comparing different down payments, mortgage programs, and how to utilize your cash.



Scenario #2

yield spread premium example

In this scenario, the borrower is now going to be short $1,400. I am not talking about getting seller help or gift funds, etc, etc. Each borrower is different and each seller is different. KISS


Key points : It's hard enough to save for a lot of cash. And even if you save a lot of cash, why should you be forced to put it all into the purchase of a new home. I truly believe that less skin in the game is better, just so you can have more reserves for emergencies.  PS : to those that scream more skin in the game. FHA loans and VA loans were doing pretty well until the last 3 years. Gee, not only are people foreclosing on FHA and VA loans, but those that did put 10% to 20% down on conventional loans. Just think about this before you scream "more skin in the game needed."  Think about unemployment, job losses, divorcees, and deaths in the family; that could be some of the major causes for the high foreclosure rates.


Conclusion : What about the fact that many buyers could be affected by this new act. What about the MLO, mortgage loan originator, who wouldn't take the time on someone buying a $100,000 or $80,000 house because the profit margin will be reduced. What about those deals that take a lot of work, a lot of elbow grease, but that I might not make more than $1,000. To some, $1,000 might seem like a lot of money per deal. But not if you know what goes into many of these deals. And what does that say for my expertise and knowledge? How much is that worth? Would a doctor or lawyer spend years of extended education and higher expenses, just to make little to nothing when it's all said and done? What about athletes? Don't they have a rare talent and get paid for it? (don't get me started, I think some salaries are just ridiculous - just trying to make a point)

What does it do when you have a loan officer that gets in over their head, realizing that it will be a lot of work to close that deal, but now drops the ball and the deal doesn't close now. People, it happens now. Wait until this new act goes into effect.




It's never to late to let those on Capital Hill know what this could do to the real estate market and industry. Let's get Janet's post and my post out to the public, to our congressmen and women, and get more people involved.


You, Me, and the YSP: Dirty Rotten Kickback or A Borrower's Best Friend?  By : Janet Guilbault


Examples of eliminating Yield Spread Premium - Thanks to the Dodd-Frank Act     By : Jeff belonger


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Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc


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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans


JANET...comment #28.. . thanks for chiming in. Your last paragraph says it all about, about being competitive. I understand Charita's issues... but she makes them to be like it's evil and that everyone did it. Maybe she was taught wrong on how the system worked for the short months that she did mortgages. I say this because I have hired loan officers in the past that thought pricing worked one way and only one way. Some companies preached different methods of selling. But wait, what about those CEOs that got very high bonuses, but who played with the numbers, making things look better.. or whose companies got gov't handouts, but bonuses were still being paid out. Sorry, but the gov't needs to start with them and not us little people. We can partially see that the big banks are trying to control some of this through the gov't, because they will be the winners based on what Bill stated... those that pay small salaries and bonuses. But some of us will know what will happen with that model... Loans will take longer... more will fall apart at closing... and more buyers won't get help on the difficult loans upfront.  thanks for saying some of what I wanted to say, but couldn't find the words.


Feb 14, 2011 09:44 AM #30
Janet Guilbault
Platinum Home Mortgage Company - Walnut Creek, CA
San Francisco Bay Area Direct Mortgage Lender

Andrew comment # 20 you wrote this:


 I heard MLO's (or whatever you call mortgage brokers these days) laugh as they were charging people 3 points up front and getting 3 in the back (as YSP) and saying the buyer would never know about the ysp

I guess it isn't nearly as funny when a real estate agent charges 3 points (for selling office) and 3 points (for listing office) to sell a house? Oh, but your point was that we didn't DISCLOSE those points paid via YSP? (sorry, I thought you were making a comment about the amount of points being charged)

Did you disclose to your buyer that the house cost 3% MORE because YOU (selling agent),  need to get paid? Nope, that's because you didn't need to sell your services at all (the way we do), since the entire fee is charged to the seller. Makes it easier to get buyers when your services appear to be "free" and you don't need to "sell" them on the idea that your services cost $15,000 (3% on a $500,000 house)

 Please be careful pointing fingers. The world would be a very different place if real estate buyers had to pay directly for the services of their real estate agent. You might have a little more sympathy for those of us who must sell the rate + all of the closing costs directly to the buyer.

Feb 14, 2011 10:20 AM #31
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans


I have to add one more part to my whole thinking... after sitting back and reading comments from both sides.

I even mentioned this in my post above... I have a profit margin and so does my company. Sure, I don't hit this number all the time, but my company needs to usually hit this, because of costs. But overall... the end result is that there needs to be profit... no matter if you get it from the borrower upfront or from the interest rate. YSP is not evil, but those loan officers that abused the system. Janet makes a few good points regarding profit and such. thanks  ps.. we could compare this to so many things... how does a financial consultant/advisor working for a company that sells stocks and bonds get paid?  hhhhmmmm... it's built into the pricing.


Feb 14, 2011 10:23 AM #32
Russ Msrtin
Perl Mortgage - Chicago, IL
Residential Mortgage Advisor

Understanding YSP is really easy.

Wholesale Rate (par rate) Plus YSP = Retail Rate.

If there is no YSP, then the borrower must pay all of the profit margin that Jeff is talking about in points.  Remember YSP is nothing more than a fancy way to say profit margin.  Depending on the borrower's situation, it may or may not be financially prudent to do a loan at par rates for the buyer.  

For example.

$400k loan at 5% with no points gives a payment of $2147.  YSP of 1% is baked in...

$400k loan at 4.75% with 1 point gives a payment of$2086.  No YSP on the loan... but you have to pay $4000 in origination fees at closing.

There is a $61/month difference in payment.  Do want to pay $4000 at closing to save $61/month????  $4000 divided by $61 = 65 months.  It will take you more than FIVE YEARS before you start saving any money.  This doesn't even factor in the odds of refinancing or moving. In fact, paying points in this situation in a way is like putting a defacto prepayment penalty on the loan for five years.  If this person refinances or moves prior to five year, they pissed away $4000 dollars.

For those of you who think community banks and the Too Big To Fail banks are offering cheap loans with no YSP, you need to wake up and smell the coffee.  Banks earn Service Release Premiums which are not disclosed in anyway.  It is technically the same as a YSP.

These new rules and regulations are just going to raise costs for consumers across the board.  Right now, LOs have the ability to negotiate with borrowers, cut costs when necessary, give credits, and incentives to work on much harder deals.  All of that is going to go away. 

For the Realtors who keep saying YSP is jacking up the rate or insinuating that it isn't earned.  Let me ask a simple question.  How many Realtors do you know who got 4 offers on a house two days after it was listed?  The house sells and closes and the Realtor conservatively gets 2.5% on a $500,000 home.  How is that not robbing home sellers??   $12,500 in commission on a house that basically sells itself in two days???  All they did was put a sign in the front yard...    Just know, the Feds are coming after you guys next.

Feb 14, 2011 11:00 AM #33
Gary Woltal
Keller Williams Realty - Flower Mound, TX
Assoc. Broker Realtor SFR Dallas Ft. Worth

Jeff, great points and re-blog, as it seems it is getting tougher and tougher to make a buck...

Feb 14, 2011 11:22 AM #34
Andrew Martin
REMAX Accord - San Ramon, CA

Janet #31, my ONLY point was that too many brokers were scamming the "poor" people and now everyone is paying for it with further regulations.

I actually got out of the mortgage business because I was selling Real Estate also and I don't believe you can do both well at the same time. But, I also felt weird about giving someone a higher rate so I could be paid, then if they just went to their local bank, credit union, etc. etc. And it also bothered me when I heard people laughing about ripping off the poor people with higher rates, extra points etc.

Seriously, I do have sympathy for those in the business still. Appraisals are a bitch now, YSP is going away, clients want all of your money in rebates, etc.

But, at the same time, I have to compete for my salary everyday against discount agents and companies like Redfin that will give 33% of the commission back to the buyer. I have to fight for my business everyday also.

Again, my ONLY point was that too many regulations will kill all business. The mortgage business is first, but I wouldn't be shocked if they start limiting an agents pay also, because as you pointed out, the buyer really is paying some of it in a higher house price.

Jeff is one of the good guys that will figure it out and still earn his clients respect.

Feb 14, 2011 11:44 AM #35
Joseph Holbrook
Keller Williams Realty - Reston, VA
CDPE(Dulles Area 703-651-9169)


 Great descriptive article. You know you should probably expect some more problems coming in the next few years. Someone has figured out that a little guy has agood deal and they do donate to the campaign fund.  I am a firm believer that the govt will certainly find a way to make it harder for everyone.  Some one has to pay for the greedy bankers bonuses and wont be the ones that should more than likely...(Every once in a while I have a glimmer of hope here in DC:) 

     Now rightfully so, the boom years were ridiculous and you really should have better quals than breathing to buy a home..   Responsibility is what it is all about and as a govt and society we forgot that. 

  Now I found your charts quite superior, clearly detailed and certainly displayed the yields to everyone.

Now I also believe that buyers agents should beware.. Someone stated something about rebates and I agree totally and thats why I would rather do a rental than work with low end buyers.. Rebates, baby, why do you need to make that whopping $8,000 on a low end townhome here in Northern Virginia?  You only showed me 35 houses in seven dam cities:))    Oh, who cares if you have to pay your taxes or your broker..  

Carry on shipmates. If we are going down, we are all going together. 

Have a great day!

"We REALLY do appreciate all your referrals"

Joseph Holbrook
HPE Properties @ Keller Williams Realty Reston


Feb 14, 2011 12:13 PM #36
Missy Caulk
Missy Caulk TEAM - Ann Arbor, MI
Savvy Realtor - Ann Arbor Real Estate

Yay! It worked, good discussion here.

Feb 14, 2011 11:55 PM #37
Nick Dailey
RE/MAX Affiliates - Union, KY
RE/MAX: Northern Kentucky Real Estate - NKY MLS - Short Sale

In your pro-fromas, why is the "cash on hand to close" exactly doubled for the w/YSP vs non-YSP?  

Feb 15, 2011 01:07 AM #38
Kenny Salame
All Western Mortgage Broker # 14210 - Las Vegas, NV
NMLS ID 313873


With the banking lobbyist clout they have shielded the YSP disclosures to the borrowers. Why is it when you go to your bank the Mortgage rate quote is typically ,25% to .5% higher then a broker? If you can get a Initial fee worksheet from the bank you do not even see a YSP on it. Who is really being protected Banks or borrowers?

Feb 15, 2011 02:15 AM #39
Brent & Deb Wells
LivingWell Properties - Prosper, TX
Prosper TX


These types of posts are why I read AR. I love this, great information and civil discussion!


Feb 15, 2011 04:39 AM #40
Evelyn Santiago, Managing Broker Heart Realty Group, Inc.
Heart Realty Group, Inc.. - Oswego, IL
Passionate About Real Estate & Our Clients!

Great discusssion but comments about how realtors make money coming from a a mortgage broker is not conducive to the discussion.  If realtors and mortgage professionals start taking pot shots at how we each earn our living as if one is better than the other does not help present a professional image.

The banks want mortgage brokers to go away so they can have the whole pie.  I, also did loan origination and understand the YSP better than the average agent - everything has a cost.  Just because the banks don't charge it does not believe you are getting a better deal.  My experience has to do with the individuals involved instead of the institutions.  Experience people will make money whether via volume or another incentive plan.

Banks will start losing based on their lack of customer service and ability to perform.  When the time to get a major bank mortgage takes 60 days with constant mistakes people will learn not to use the bad performing banks.  Same when a realtor does not keep their buyers or sellers informed during a transaction, does not return phone calls, etc.  They will lose business.

Eventually, other players will come into the market if they can find a way to make money.  It's the American way.  Yes, unfortunately, government intervention even though well meaning may have the opposite effect.  NAR and the Mortgage Brokers Association should have teamed up to get a better system in place instead now we have just narrowed the choices for consumers.

Realtors and mortgage brokers and banks still need each other to complete the home buying process. So, let's respect each other and understand the other person's viewpoint before making rash statements.

Feb 15, 2011 04:44 AM #41
Jason Sardi
Auto & Home & Life Insurance throughout North Carolina - Charlotte, NC
Your Agent for Life

"The Dodd-Frank Act does to the consumer what Frank does to his "mate" with out the lubricant."

I heart Bill.

Feb 15, 2011 05:24 AM #42
Thomas Tom Carpenter
VanDyk Mortgage Corporation - Grand Rapids, MI

Hi Jeff,

Nice article, Very Good Points.

Its like the GFE, The change was going to make it eazier for consumer to understand costs: Right

Who the hell created the APR calculation? that no consumer understands: Right

YSP,Points,backside,origination fees, underwriting fees, processing fees, broker fees:Right

It looks like most Wholesale Lenders in the Midwest are going to pay a flat 2 points, You will be able to buy up and down the rate and use the funds to pay costs,but no override: Right

Jeff, I have originated loans for 25 years and I have now witnessed a full circle,  The more things change the more they stay the same.

As Billy Joel said: Only the good Die Young, The best will weather this one toooooooooooo!!!!!!!!!!

Feb 15, 2011 07:51 AM #43
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans


JANET... comment # 31... . as you and I know, this was a select number of loan officers and some of them are still in the business. I guess what is truly misunderstood about YSP is that you can't see it as one could see a television when buying one. We know a profit margin has to be built into the sales price. That the tv had to pass hands... and people accept this. With YSP... people and some realtors think that we should just hand over the difference, that we will still get paid.. and that is absolutely false. I don't care what credit unions do... if they were the best, wouldn't everyone be going to Credit Unions? Most Credit Unions act as a big bank also.. and they aren't really cheaper and get the money from the same place, unless they want to portfolio their own stuff... bank it themselves. Besides,.. sorry, but many that work at a credit union only know vanilla stuff, don't have a place or know how to tackle the hard loans. It's a fact.  thanks for coming back and adding to this discussion.

RUSS... . very good.. someone not only understands this, but read what I wrote. Yes, basically if you don't have YSP, you will now need to pay for the pricing up front and my profit margin. And you bring up SRP's, which anyone gets also... but it's the sum of both the SRP and the YSP that allows any lender or bank to offer a different scale of rates. If we talk any or all of that away, as you stated, the buyer will just need more cash to close with. It will be interesting times by the summer time. thanks for your feedback.

GARY... . it will get tougher on some avenues... and thanks for the polite compliment. As far as reblogging, not sure why that feature has been disabled or not working.. thanks

ANDREW...comment # 35. . I guess I will be writing a blog post on brokers and bankers... sadly enough, both sides were scamming the buyer. I knew of mortgage bankers that had sweat shops that were raking buyers over the coals. Most of those people are out of the business now. They didn't take this job seriously and it was easy money at the time. And I am glad that you are only doing one job... sorry for those that do both, but it irks me on how one can think they can do both very well. Maybe if they weren't busy and did 2 buyers a month in real estate and maybe 1 or 2 mortgages... and didn't prospect and anything else. Lastly, you stated this...   "Jeff is one of the good guys that will figure it out and still earn his clients respect."  - lol  yea, but at whose cost?  If this gets worse, I might have to find something else. I think I am to valuable to keep making nickles and dimes for what I do and how I educate others. It might sound conceited and that I have an ego.. but I do know that I work for the consumer and that I try and educate them.  thanks for the kind words...

JOSEPH.... . I hope it doesn't get harder... it's wearing on me.. lol  Seriously though.. I am tired of the CEO bonuses based on bogus performances... and that the gov't needs to back off some. This so-called greed was around from the late 90's to 2006... why didn't they intervene back then?  Because we had no major messes and or issues. Now they jump in with both feet pounding away. They got to harsh in my opinion... thanks for your input and for the compliment.

MISSY... . yes, and thank you.. and yes, good discussion for the most part. thanks for stopping back.

NICK... comment # 38.. . if I understand correctly, why does the left side have more upfront cash than the right side? As I explained to someone above.. I wanted to show that the person who has less cash will be hurt even more. And in some cases, actually need more money. And just for the fact that this can take away from a buyers reserves, which I think are more important... just for emergencies.  thanks and I hope that helps some.


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