For anyone who doesn’t usually read lenderama, let me just say this. lenderama is a blog for mortgage originators. If you’re not originating mortgages, you’ll welcome to hang out, but we won’t usually be catering to you. Today’s post is a rare exception. Today I want to speak with consumers, especially those who have been fooled into a lie. If you’re an originator who’s helped to propagate this lie, take this post as challenge to stop it.
You don’t qualify for a mortgage rate, you negotiate one. This applies to EVERYONE. Period. No exceptions. Every interest rate ever offered from the beginning of time is negotiable. Their is no magic computer, set of guidelines, or all powerful underwriter who determines the rate you will pay. It’s always a negotiation. Always. Every time. Am I getting through to you?
When borrowers tell me stories of how they overpaid, I always tell them the same thing. “Wow, you should have shopped around some more”. I guess I should hold their hand and feel their pain, but my advice is the only advice that will help them in the future. The rate a loan officer offers you is rarely set in stone, and even if it is, it’s entirely likely another originator can do better. It’s you duty to shop around.
I don’t know how this myth propagated, but it’s my guess that we owe it to credit card companies. They’ll tell you, “You qualify for an X% rate”. What they are really saying is, “This is the lowest rate you would like to offer you”. Do you see the difference? Did you pay full price on the last new car you purchased? Just because that was the price the manufacturer suggested? Interest rates are every bit as negotiable.
How mortgage interest rates work.
It is true that your credit score, level of income, down payment, job history, assets, and other credit liabilities all play a part in what sort of interest rate you will qualify for. However, these factors just get you into the ball park of what you will pay.
Lenders take into account all of you risk factors and qualify you into certain loan programs. Someone with bad credit, no down payment, and a bad job history is obviously a higher risk than someone with perfect credit, a 20% down payment and 10 years at the same job. But even then, once a loan originator has determined the appropriate pool to place you in, they still have a great deal of latitude as to the interest rate they offer you. If they offer you a higher interest rate, they make a bigger commission. In the case of mortgage brokers, this commission is reflected in YSP.
So now you’re thinking, “I qualified for a lower rate, but overpaid because I know my Loan Originator earned a YSP”. Sorry that’s wrong. You don’t qualify for an interest rate. You qualify for a loan program. You’re OFFERED a rate. You have no right to it.
It’s no different than buying milk from Walmart. The loan originator is going to earn a certain amount of profit on any loan they do. If you do not find that amount agreeable, go look for a loan originator that can do better. With tens of thousands of ethical loan originators working to provide you with a competive loan, the easiest way avoid getting screwed is to shop around. It’s really that simple.
How borrowers are two smart by half.
Borrowers who have been spending to much time on bubble blogs, or even the main stream press are paddling up the wrong stream in reforming the mortgage industry. They think that limiting or eliminating the YSP that a broker can earn will fix the industry. SORRY THIS IS FLAT OUT STUPID. YSP is just a simple way to provide a free market of loans to a mortgage broker. Eliminating it will hurt competition. The crooks will find another way to screw you, and the status quoe will go largely unchanged. Think about this again. Does it really matter how much they make? What should matter is what you pay. If Walmart makes more profit on a gallon of milk than Safeway, should Walmart have to lower their costs? It’s silly. Just buy it at the place that charges less.
Stop worrying what they get paid, or what rate you should “qualify for”, and just go out and find the best deal for you.
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{ 44 comments… read them below or add one }
Amen, Brother!
Todd, may this post be read by consumers everywhere!
Oh yeah, and what did you say about negotiating with Walmart?
Todd-
I saw someone at a Wal Mart use the price that the cashier rang up as the starting point in negotiations. Just was one of the funniest things I’ve ever done.
Todd-
I have to say, I didn’t see this ending in reasoning on why elimination of YSP is a horrible idea. I like and agree with most of your points here.
One thing also worth mentioning is that BANKERS also get paid in a similar way that BROKERS get paid.. with SRP or servicing release premium.
The proposed legislation only targets brokers YSP and not bankers SRP.
Talk about a fair market.
One other effect of the elimination of YSP is to make it much less worthwhile for a loan originator to work with problem credit/problem situation borrowers on, for instance, a difficult to package FHA loan which gets referred by automated underwriting.
If your profit is limited by removing YSP from the difficult loan, but the demands on your time remain the same, why not just spend that time giving a really good deal to the borrower who is easily approved in the automated system and save yourself the aggravation?
The disclosure world has changed for the better. YSP now must be listed clearly in dollars and cents, the bad actors cannot hide and surprise. I love the conversation with the banking client, ” please ask your bank loan officer to explain the banks SRP. I welcome full disclosure and pointing out to my clients that the banks don’t do so.
Now lets make sure that critically needed loan programs (FHA) are available to all consumer-centric mortgage originators who do fully disclose YSP.
There are so many points to talk about when you talk about YSP.
For the consumer, not only is there a “range” of interest rates that are available to them based on their credit profile (credit score, downpayment and loan to value), but that range, if presented properly, is based on what they want their payments to look like and how much money they have to pay closing costs.
YSP is and can be used to help the borrower with closing costs (think “no closing cost loan”) as well as pay the originator. Its not a scary thing and is (many times) in the CONSUMERS BENEFIT to have!
When talking about the broker, they are the ONLY origination channel that has to fully disclose this up front to the borrower, lenders do not have to! Now we even see MORE redundancy in the same re-disclosure of YSP because no one really understands how to explain it in plain language and everyone is thinking its somehow a bad thing.
Lenders set the rates (not brokers), lenders set the YSP paid (not brokers) and (while we are talking about all of this) LENDERS underwrite the deals and approve them, so how is it the brokers are always the bad guys?
If the consumers really understood that its the broker that has access to many lenders and gives them the most choices of programs and that they can help the consumer pay closing costs due to the YSP they recieve, they would flock to the brokers. Its up to the brokers to make the deals at a fair price and fully disclose to their borrowers what is available to them and what meets their personal needs most appropriately. The best brokers in the business today do just that. They have long term borrowers that just like your insurance agent or financial planner become part of a consumers financial team. Just like anyone else you choose to rely on, find the one that is right for you.
First of all, excellent post, spot on. It also doesn’t help that there is a great deal of misinformation out there and unfortunately some of it is put out by Mortgage Brokers themselves….case in point, this guy’s pitch ( http://tinyurl.com/2k5tad ) is “exposing” the “rip-off” in all things mortgage. He describes YSP as, “extra profit slipped into virtually every loan”……which is what you would expect from somebody who has written a book about the “Top 7 Mortgage Rip-offs and Swindles” ….. I think anybody who uses the word swindle is suspect.
Todd,
Thank you for the article. It was a help. I always looked at what rate you get the same as a menu at a restaurant, not realizing I can negotiate a rate, just the price of the house (which I did very well). I thought rate negotiation was what the Mortgage Broker was for, since he or she knows the system, laws, and ETHICS of it all. I have always considered myself a savvy shopper. I have NEVER paid sticker price for a new car, I always shop around to find the best product for the best price (drives my wife crazy).
Now before I go on, let me preface the following statements with this. I do NOT think the FEDERAL Government should get involved with the Free Market. I believe a State Government and consumers have the power, right, and responsibility according to the 10th Amendment. Nor do I think the Federal government should be stepping in to help me to try and save my house…that is what my lawyer is for.
I had 9 years of work history in Alaska with 2 different organizations. I was transferring with one of them to Oklahoma, same title, same position, same pay. I called around and e-mailed 8 different places in Oklahoma and the Internet to get help finding a home/mortgage. Only 1 guy would return my inquiries. I don’t know why he was the only one, maybe it was too much trouble to help somebody long distance.
Like I said in my post, my wife and I had very good credit history with little negative (negative was 2 yrs before when I had gotten sick and had a couple of 30 day late pays, but nothing worse then that and we were all caught up. No repos, or collections). I was NOT high risk.
He must have seen the opportunity because as I mentioned in my last post, he bold face lied to me about refinancing, the prepayment penalty, he never disclosed what SYP was even when asked at closing, and laughed all the way to the bank!
Now pray tell how should those tactics be protected? I know that there are Brokers who do not do this, but there is nothing stopping them either. I also have to say your last section of article about getting a kickback from a mortgage company by placing people in a higher risk rate helps the market…how does it help the consumer to have to pay higher for a house when the Mortgage Broker is ethically responsible to find the BEST rate on the consumers behalf….can’t you see the conflict of interest there?? That is not good for the market, it causes problems like the one we have now in the US. It causes problems because people are evil by nature and that is why God put government in place. The government (ruled by the people for the people) helps keep the market and consumers protected. That is why STATE governments need to get rid of the SYP. If they do this we will see those states that do not allow SYP to have a better economy with less fraud.
If you post my response I would be greatly appreciative, as I feel it allows the readers to get both your perspective as a Broker and mine as a consumer.
Again thank you very much for your time,
Most sincerely,
Johnny Furlong
Johnny, the mistake you are making is in assuming that the mortgage broker is responsible for finding you the lowest rate. YOU are responsible for this.
There is no conflict of interest because the broker is only acting in his own, as you must in yours. I know I’m coming off as a jerk, but it’s the cold hard truth.
If YSP was banned, Everyone would loose. Loan Originators would not be motivated to work on difficult loans. They would not shop their lenders for anyone. Here’s an example.
If I’m a mortgage broker, and get paid the same in sending my loans to either Countrywide or Wells Fargo, how do I decide where they go? By who has the easiest underwriting? By who has the prettier Account Rep who takes me to lunch? How?
In addition, because the actual rate has become less important to a broker, it will be less important for lenders to provide the lowest possible rate. Most consumers don’t blink an eye at the difference between 6.625% and 6.750%, but that’s thousands of dollars, with nobody motivated help them get it.
With YSP, lenders compete for business by offering the best possible rates and commissions. With an ethical LO, at least part of this improved commission is passed on to the borrower. Take away YSP, and lenders will have to find other ways to attract brokers, and for the most part, these new ways will not benefit the consumer.
One additional note. To understand what the lending landscape would look like without SRP, one only needs to look at the last period of time before YSP was became popular. Go back and take a look at interest rates back in the 1980’s when savings and loan companies dominated the marketplace.
I hate to send this off into an esoteric political discussion, but it is best to look at government by what it really does rather than some idealistic vision of what it ought to do.
The first thing one has to do is drop the idea that a perfect world where everyone is completely protected is even a possibility. Utopia doesn’t exist.
The second thing is to realize that turning to the government always simply brings on a new set of problems that end up getting managed by lobbyists and career bureaucrats who answer to nobody and have no motivation whatsoever to fix any problems. Many of the present mortgage problems can be traced to the natural results of government intervention in the first place. The pressure to make loans constantly easier to obtain actually started with the government.
It was dead wrong for the mortgage broker who put Johnny Furlong into that mortgage to lie. The problem is whether it was caused by the existence of YSP. Most likely, on a full documentation loan, the loan officer could have made more YSP on a prime loan. So maybe there is more to the situation than meets the eye when looking at just the credit score? It is a myth that loan officers make more yield spread on non-prime 2/28s than on prime loans. The usual benefit to using those non-prime loans has always been less scrutiny of the borrower’s credit and income/debt ratio situation.
P.S. I want to make it clear I’m not accusing Mr. Furlong of anything inappropriate, just theorizing that his mortgage broker may not have informed him of some potential problem with the file that another broker might have.
Well, you guys know my stand on this. The fact that 90% of borrowers choose to have their costs absorbed by a YSP tells me that they have determined that paying less out-of-pocket makes sense to them and that the rates charged for granting this option are reflective of the market.
Besides, YSP-haters and APR screwballs neglect the fact that many many people don’t have a long-term timeframe in mind when they take out their loan; it then makes sense to pay as little upfront as possible (the opposite of the “upfront mortgage brokerage” philosophy — UMBs don’t necessarily charge less, they just do it up front). Why is it that that the muckrakers assume that people choosing the best option for their situation must be stupid?
Another excellent effort, Todd.
Hi all,
First of all, it’s important to address this from Johnny:
“people are evil by nature and that is why God put government in place”
I very much believe people are not evil by nature. However, many philosophers have pondered about our self-interested nature. Perhaps this is what Johnny meant. Also, God doesn’t put government into place, humans do this.
I’m not a YSP hater,
I am very much against those in our industry who bait and switch, using YSP.
I am against low-balling the good faith estimate on YSP, only to turn around and see that the LO made thousands more, without giving the borrower an opportunity to “challenge” the LOs higher earnings. You call it negotiation. Then go ahead and make sure the client has ALL THE FACTs. This is only fair.
I am against seeing the hundreds of GFEs and HUDs that I’ve seen where the consumer was not even aware of a YSP until they entered the signing room.
This leaves no room for negotiation and is unjust and unfair.
So folks, have fun with your YSP love fest, but the reality is, there are many brokers and LOs among the fabulous brokers and LOs who are ripping off consumers.
YSP is going to continue to get targeted by the government and by consumers until the entire industry as a whole decides to put a stop to deception right at the retail level.
Sample GFE I recently took a look at:
“YSP Estimated to be between 0 and $80,000.”
Please explain to me how much time and effort it takes to make that kind of money off of a subprime borrower.
Please do not go into great depth about Realtor commissions. That’s a red herring for another day.
I’d really like to have been in the room when that LO explained to the consumer: “Now your rate is negotiable. Here is the YSP. This is how much money I’m going to make. This is negotiable.”
Your thoughts?
Yes, Jillayne, and I’d like to have been in the room when any salesman in all of history encouraged a customer to haggle. I’m sure you can site plenty of instances.
The real red herring is the idea that the amount of yield spread the loan officer receives should be disclosed at all. All that the borrowers really need to decide whether they approve of a loan proposal or not is the interest rate/payment, loan amount and amount of out of pocket or seller paid closing costs. This is also all the information needed to compare the loan against other loan proposals. Different mortgage brokers will be receiving different amounts of yield spread for the exact same loan. Everyone acts as if this is standardized.
This emphasis on yield spread is the result of the overzealous actions of community activists whose real goal is to make a name for themselves.
Ripoffs occur when loan officers worsen the agreed upon rate and terms of the loan, or add extra closing costs at the last minute, or fail to inform a borrower that a loan is adjustable. Not simply when a loan officer makes more YSP.
I acknowledge that YSP disclosure is required and that YSP is (foolishly) in the gunsights of regulators trying to buy votes. And that this movement is a snowball rolling downhill. As happens with most of these regulatory frenzies, the end result will be worse for the customer than the problem they are trying to solve. Loans will become more and more difficult to obtain, and the documentation needlessly more complicated to understand.
The alternative to the system of YSP is for property values to be inflated over time to cover the real costs of paying all the many parties it takes to get the loan to closing table in the same way that they have now been inflated to cover real estate commissions. Then the cost can simply be added to the sales contract in the same way.
Jillayne: Capitalism grants you the guarantee that you DO NOT have the right to know what cost is being borne by the person you have purchased your car, computer, pen, or chair from.
Borrowers are not negotiating based on what the broker is making or YSP, they are negotiating on what rate they can get and how that relates to competition in the marketplace, so if the broker is making $10, or $10,000 is irrelevant. If the broker is only making $10, but a lower rate is available elsewhere, is that borrower going to go with the higher rate where the broker makes $10 because the borrower has been successful in negotiating down the YSP? Of course not and that is why YSP is a component that is irrelevant to negotiating a rate and the best deal for the client.
Again, borrowers don’t get or need the chance to challenge YSP, they get the more relevant and important ability to challenge the rate. That is what matters.
Its called personal responsibility. If I see something I don’t understand than I am responsible to ask questions and determine what to do next. And as a consumer I have all my rights to walk away no matter how much time and effort went into working with me. Its up to the consumer to take advantage of this right or not. Bottom line.
Well, at the risk of being tarred and feathered……
Mortgage bankers aka lenders take the rate risk. They don’t know the ultimate price they will get for their pools until they package and sell them. They may make money or lose money on a deal. There is no accurate or meaningful way to disclose this to a consumer before application or even before closing.
HUD has had to face a problem and find a solution that works for consumers. They can’t be interested in insider dog fights. The constant argument between mortgage brokers and retail originators over who has to tell whom what they make is just not interesting for consumers and sorry, but that’s just life.
Unfortunately the myth of the mortgage broker as the fiduciary of the consumer has propagated and consumers wrongfully, as Todd points out, think the mortgage broker is negotiating on their behalf. HUD has a duty to the consuming public to fix their perspective and HUD is doing so in a tactful way by not pointing fingers and throwing stones. They try very hard in their proposed reform to NOT point fingers at mortgage brokers but rather to simply find SOME way to create a vehicle through which consumers may shop and negotiate on their own – for their own best interests.
The new GFE – from the perspective of the consumer – will foster a new style of competition. The bottom line is that consumers will choose to pay out of pocket for mortgage broker services or not.
I suspect that mortgage origination, whether through a mortgage broker or retail origination office, will return to what I call NORMAL. Less income per deal and more volume processed by fewer players. Sorry, but that’s what I call normal. HUD discloses in their material that between 2000 and 2004 the number of mortgage brokers almost doubled. That’s ridiculous and unneeded.
Todd, this was an excellent post and I plan to link to it from both blogs.
In response to LISA andTODD
This is an amazingly ridiculous statement. As if the consumer is to be able to know what questions to ask and have the ability to determine awash the masses of paperwork, jargon, and time frame if they are getting screwed or not. What is the consumer supposed to do when they are being bold face lied to…is their ESP supposed to kick in and tell them they are being lied to?
As a consumer you are to have common sense, but it is the responsibility of the Brokers to be honest. The law is clear that it is not the responsibility of the consumer to catch fraud and to be able to ask all the right questions…that is not possible. It is the responsibility of the business to be honest.
An earlier post said it was wrong of me to assume the Broker had to work in my best interest…but their own. Then why pray tell are their Brokers or LO? If you are all a bunch of self absorbed, greedy individuals who play off any responsibility for your profession then why go to you and pay you money to find a mortgage?? Its like telling someone, ” Hey let me pay you to provide me a service and make sure you don’t consider me in what you do…just gett the best deal for yourself, even by lying to me so I can pay you more…Thanks pal!”
It is richly insane to say that there is no ethical standard for the Broker or LO to work on the behalf of the individual who is using their service. To get them in a higher rate for a kickback (yes, a kickback) is wrong. It seems to only be the Brokers and LOs that think there is not a problem with the YSP.
It’s the government fault, it’s the consumers fault, but not your fault and there should be no recourse or laws put in place to stop you all from screwing someone!
What I have found at this sight is a bunch of people who want the money without the responsibility of ethics.
Again, at the risk of being hated…..
THANK YOU JOHN FOR REPRESENTING THE CONSUMER IN THIS DISCUSSION.
This is the truth. What we have is a corrupted industry mindset. It’s not how it used to be. It’s not how it has to be. Good livings can be made in mortgage origination. Trust me. Relax.
If it’s a negotiation, then let the parties negotiate but let the rules be fair.
Consumers DO think that they are paying a mortgage broker to find them a good deal, so, either pony up to that fiduciary responsibility or correct the misconception – LOUDLY – so everyone is on a level playing field.
Johnny,
I’m very certain not a single person here has defended lying to you. That is always wrong in any business.
Mortgage brokers have traditionally been a sales force representing the lender. The lender pays them a little more for originating higher interest rate loans because the lender potentially makes tens of thousands more from that higher interest rate loan. Even so, mortgage brokers competition with one another has been a major market force in lowering interest rates. There is also a growing group of mortgage brokers who are establishing a contractual fiduciary duty with borrowers in the manner a free market should deal with such a problem.
In spite of all the confusing paperwork – which, by the way, is the result primarily of government regulation to “help” the consumer – the terms of the loan and the total closing costs are very obvious elements of that paperwork which are fairly easily understood. Even if a borrower didn’t take the time a prudent consumer should to research the mortgage process using one of the many widely available sources for doing so, simply calling 3 different mortgage brokers for quotes would give that borrower a near 100% chance of avoiding being scammed into a bad loan program.
It just isn’t possible to produce a law that will protect everyone from ever getting screwed over. It is past time that Americans stop thinking that turning to the government to take care of them is always the answer to every problem.
I am of the opinion that the mortgage broker explosion,” was due to the acceptance of and inappropriate application of loan programs such as Stated/Verified, Stated/Stated, No Ratio and No Doc. One did not have to BE a loan officer to originate loans. HUD programs are full doc, as they should be. Today the mortgage broker has to disclose all fees and YSP, which is a good thing. The banks and lenders should have to do the same.
Great post Todd, this one is really stirring the pot.
Johnny,
I apologize if I made it seem that I was promoting or endorsing any practices that hurt you or any consumer. My comment was specific to our responsibility as a consumer to understand financial decisions we make. We will always be our best advocate.
Even if you were to buy an plasma TV or a car or any large purchase you would most likely do some research, price them with a few different stores to make sure you were spending your money wisely. This would be no different.
I am sorry for your experience, but what I am advocating with not only consumers but our industry as well, is better education for all parties and better ways to communicate to all levels of understanding.
As you can see by the perspective of all who have replied, this topic is one that clearly needs better understanding in order to be most effective for all involved. Your perspective particularly is an important indication of how we (as an industry) have not yet addressed this issue effectively.
Awesome! This is probably the best explanation for YSP and consumers, I’ve ever read.
What a great post. YSP is one of the greatest things in the industry. I dont think that how this post was stated could have been stated better. the one thing that we as mortgage proffesionals need to realize is we need to not get soupset if the borrower gets up and finds a different lender we need to create a free market so we will win some and we will lose some we can not take it out on the borrowers we need to just give the borrower what they are due. or sell them the rate that they are due.
Todd says:
“You don’t qualify for a mortgage rate, you negotiate one.”
The underlying problem, which gets redirected towards YSP, is that an average random consumer holds a false belief that when he or she hires a mortgage broker, that the broker is going to be working for him or her in order to obtain the best rate.
It doesn’t matter what’s in your mandatory disclosure statement. Instead, it matters what’s in the consumer’s mind.
If brokers want to keep earning their fees via YSP then it will become very important for the broker to make sure the consumer understands exactly what the broker will be doing in order to earn his or her fee.
This is where the brokerage industry has failed itself. Please don’t point the finger at YSP, instead look within your own ranks.
Todd, you’re making an argument in favor of the consumer negotiating with the broker.
A fee is paid to a broker because of a broker’s ability to have access to a wide range of available products and fee structures, and that you’re going to find these products for them.
In reality, then the argument you would be making is that a broker is worth nothing because any consumer could find these products via the internet in today’s world. Only when a broker works on behalf of a consumer is the broker worth anything.
Any time brokers make the argument that it’s up to the consumer to figure out if the consumer is being ripped off, then it would follow that brokers want to continue to hide their YSP and pretend that “it’s not relevant.”
YSP is a distraction. The real underlying problem is the relational structure between the consumer and his or her mortgage broker.
It’s like a married couple fighting about putting the toilet seat down. It’s never about the toilet seat; the toilet seat is just a convenient target.
I feel a follow up post coming.
Traditional mortgage brokers have enormous value in the market as a sales force for the lender. That role is the genesis of the YSP system. It was never intended to be a direct benefit to the consumer. It was designed to make more money for the lender. However, competition among brokers has drastically lowered interest rates and experienced loan officers have been able to match borrowers with the available loan programs much more effectively than any software could. Thus it is just simply incorrect to say that a mortgage broker has value only when working for the consumer.
Like all systems, this one is in a period of evolution and there is room for all approaches. More and more mortgage brokers ARE now working on behalf of the borrower instead of acting as salesmen and experience will show whether consumers really value this or not. Time will tell if that is really what consumers want.
None of that changes the fact that the very simplest way to compare loans is through payment, terms and closing costs. YSP should be irrelevant to that comparison.
All the uproar going on now is, at its core, just a successful attempt by politicians, bureaucrats and community activists to increase their own power and influence by blurring the real issue. The real problems in the mortgage industry are caused by lenders overleveraging and excessively easing guidelines – This was directly encouraged by government removal of risk – and by fraud, which is everyone’s fault, but which there are already laws against. If the same effort was being put into preventing, tracking down and punishing fraud and into loan quality control and due diligence as is being put into blaming mortgage brokers for the problem, the problem would already be nearly solved.
Similar transitions happened over many years in real estate agency. Things changed from agents keeping everything above a certain price to all agents working for the seller while buyers mistakenly thought they were working for them to the existence of buyer’s agents. The difference is that the real estate agents’ lobbying group got out ahead of the legislative curve.
Hi Carl,
Your argument is very rational. However, there’s one big, glaring omission:
Not all mortgage brokers complete the good faith estimate as required by state and federal law.
Many low ball the GFE, bait-and-switch, quote one rate and deliver another, and so forth.
How is a consumer to make an informed choice when faced with flat out cheating?
The whole world is growing tired of mortgage brokers blaming everyone but themselves.
Shirking responsibility is childlike.
Someday the brokerage industry will grow up.
If the brokerage industry continues to pretend that they are the innocent victims of this entire mortgage crisis then please don’t complain when consumers continue to say they don’t trust you.
It’s like a woman complaining about a glass ceiling at work but then in the same breath, saying women are victims in the workplace and must be “protected” from big, bad workplace “men.” Playing a victim keeps you there.
Jillayne, nobody here is complaining. Nobody here is shrinking from their responsibility. Nobody is endorsing bait & switch or lying or cheating.
I know it’s great to dream about a day when all LO’s only put the consumer first, pay for you to school them, and then sit around the campfire and sing Kum-By -Ya, but that’s not where we are today.
No need for us to get excited folks, The Federal Government has every intention of managing this issue for us. Does the NAMB and its state affiliates like this, hell No! Did the NAMB and its state affiliates sit around and watch the bad actors abuse YSP, hell yeah!
We are about to be regulated into oblivion, I don’t like it but I do understand it.
I just got my insurance license!
I consider bait and switch tactics, and lying or cheating to be fraud and appropriate targets of regulation. It’s just another reason customers should base their decision on the broker’s references and reputation instead of just a GFE.
I have no problem with this in my own business and I encourage and take part in efforts to educate the consumer about how to avoid such mistakes. In the 23 years I have been in the mortgage business there are countless instances I have closed loans for almost nothing in order to deliver a promised rate or closing costs – even though the customer decided not to lock – just because I told the customer that is what their rate would be. I also have no problem with private organizations developing their own ethical standards and marketing that benefit to the public. If that is what the market really wants, it will take off like wildfire.
The problem here is that the patient is having a heart attack and the doctor is cutting off his leg to fix it.
Unfortunately, people today have naively grown up believing that the government is going to protect them from every bad thing that might happen to them. In spite of ample evidence that the government, regardless of our greatest hopes, isn’t any good at it. Whatever regulation gets proposed and no matter how well intentioned, the government WILL screw up its implementation. There will be some unintended consequences that are worse than the original problem yet there will be no way to step back and correct the problem.
We’ve also grown up thinking of people only as members of groups instead of individuals responsible for taking care of themselves and for their own actions. I am not responsible for the acts of all mortgage brokers, only my own. My customers never have any of these problems.
Regulation is essentially punishment directed at the innocent in advance rather than action directed at offending parties. In spite of our utopian fantasies, government doesn’t work. We have to start looking at government for what it really does and not for what we hope it can do.
It is time to start looking for different kinds of answers instead of always jumping to “we need a law against that”. There are simpler, more effective solutions than regulation.
Carl, I agree.
Guys, we are all part of the debacle as this is our industry. There are great Loan Officers and there are bad loan officers. Most of the bad lack education and oversight. We will all pay for it, so what we can do now is make sure we are the most professional we can be.
We already do have new disclosures, unfortunately they will not help the consumer as its one more piece of paper, but we can treat our customers fairly and try and educate them what to look for as they shop.
As I mentioned joining groups that are committed to this and participating in community activities to help consumers get educated is also something that we bring as value to our reputation and the benefit of future borrowers that need our services.
Carl says,
“I am not responsible for the acts of all mortgage brokers, only my own.”
at the same time also saying:
“Unfortunately, people today have naively grown up believing that the government is going to protect them from every bad thing that might happen to them.”
Carl and readers, imagine a day when consumers who had never met you judges you based on the acts of the entire mortgage industry. Wake up. That day is here
The acts of the entire industry are something we are all responsible for.
The more we keep denying this, the more government is going to step in and slap us with more and harsher fines, penalties, and regulations.
Todd says,
“I know it’s great to dream about a day when all LO’s only put the consumer first, pay for you to school them, and then sit around the campfire and sing Kum-By -Ya, but that’s not where we are today.”
I’ve been writing and publishing articles on fiduciary duties for about 7 years now. Perhaps I was 7 years too early back then, perhaps I’m 7 years too early today. I don’t care where we are today, I care where we are going. If the industry doesn’t stop whining, blaming, and denying that YSP abuse continues on even today, then the brokers are going to end up being ranked lower than used car salesmen when it comes to consumer respect and it will take decades to begin to climb out from under that rock.
There are thousands of awesome LOs out there nationwide. I’ll keep working for a better place for them. I’m not a dreamer, I am a do-er.
I have absolutely no delusions about whether abuses are happening today. I just think that government action is very rarely the appropriate solution for any problem – ever. I also think that some other type of abuse will pop up to replace whatever problem the government supposedly regulates away.
I have been writing and publishing about that for years on a local basis. And I’ve been supporting organizations which try to push politicians in the right direction. It is a much larger fight than what is happening in the mortgage business and quite frankly more important for the future of the country. This constant agitation for government action instead of a more creative solution is a cancer eating out the soul of America. By the way, the Cato Institute, one of the organizations I support in this fight, has some interesting information on this crisis here:
http://shrunklink.com/anxu
In the meantime, I’ve been reporting any fraud I’ve seen for years. I’ve also been directly educating consumers for years. I believe directly stopping fraudsters while educating consumers is a much more effective method of solving the problem. I don’t have any delusions that either of my efforts is going to change the world.
But, in the mortgage industry, I’ll keep on fighting against cutting off the patient’s leg to treat his heart attack. Just because there’s popular political pressure for regulation doesn’t make it right and doesn’t make fighting it “sticking your head in the sand”.
Well Ill I really can say is just what Jillayne said that Carl said is that I am am only resbonsible for what i do, but lets just hope that I can be an example to either the borrower the broker or my employees. it really comes done to ethics.
Carl says,
“I just think that government action is very rarely the appropriate solution for any problem – ever.”
I agree.
Here’s the problem everyone has with mortgage brokers. They never tell their customer who they are working for how the YSP works. Why do they have to lie and keep the YSP a secret? I could call 20 brokers tommorow and tell them I want the lender to pay the points, and I bet not 1 will tell me how the YSP works. I believe this dishonesty will be, and has become the brokers downfall.
Thanks for reading!
You nailed it
AGREED!!! This is exactly the type of information our borrowers need to know in order for the market to stabilize. Although I do believe there is a part to be played on the originator to appropriately convey the information, it is ultimately up to the borrower to look out for their bottom line, shopping around and asking the RIGHT questions is the only true way to get a loan that best fits the needs of the borrower. I encourage my prospects to shop around and come back with GFE’s from other lenders so I can get a feel for the market from the borrower’s perspective to stay competitive and aware of market conditions.
NOTE TO CONSUMERS:
Though “originators” like brokers are required to disclose this information, don't be fooled by “Direct” or “Retail” lenders as they are NOT required to disclose YSP and often roll those same fees into the myriad of “Loan Origination” fees, and in some cases with larger banks, the fees are even higher than you would have paid out through a broker due to the fact that a broker is often more able to negotiate through 3 or more wholesale lenders and even up to 15 banks as in the case of one SF bay area firm I worked with who is now a “Direct Lender” for brokerage firms.
All in All, don't be scared of broker fees & shop at least 1 broker and 1 bank, then compare quotes and ask the RIGHT questions.
Awesome Article. It's good to get another perspective on YSP. I'd rather pay one percent up front in origination fees than take a higher monthly payment because of undisclosed Yield Spread Premium. One percent is a perfectly reasonable fee for the mortgage broker's work. Yield Spread Premium on top of that is completely unnecessary and if it's undisclosed, disguised, or hidden it's a lie.
YSP is not irrelevant, it is in fact integral to the offer to the consumer, for example the broker could offer up
5.125% for a 45-day lock and the broker is earning 2%
Isn't it a better deal to the consumer to have 5.0% for a 30 day lock, same YSP?!
If you throw in paying some closing costs on the first offer than its sweeter…YSP will help in determining the length of the lock and the rate, so the consumer can benefit from knowing the yield from jump street, you follow?
I am speaking from experience. If I knew the yield before going on, then I'd rather have 5% for 30 days or have some closing costs pitched if I am paying another 1/8. I feel gyped. If you can soften the blow, write on!