John Q. Public and what you should understand about the current Mortgage Mkt & The Obama Adm Financial Reg Reform Plan. Please READ!
Many homeowners choose their Bank when taking out a mortgage loan. Banks are a convenient way to get a mortgage; however, this convenience comes with a price. Bank mortgages include a hidden fee called Service Release Premium. Here are several tips to help you avoid overpaying for your mortgage if you are considering borrowing from your Bank.
The most important thing you need to know about Bank mortgage loans is that banks are exempt from the Real Estate Settlement Procedures Act (RESPA). RESPA laws protect borrowers by requiring lenders to disclose information about their mortgage profit margins. Your Bank is in the mortgage business to make money and they do this by selling the mortgages they originate on the secondary market.
What is the secondary mortgage market? This is where mortgage debt is pooled together by lending institutions such as Fannie Mae, insured and sold to investors. If you take out a mortgage from your Bank they will turn around and sell the loan as soon as it is funded. The higher your mortgage rate, the more money the Bank receives when selling your loan. This is where Service Release Premium factors in.
Similar to Yield Spread Premium, Service Release Premium is the markup of your mortgage interest rate to boost the Bank’s profits on the secondary market. Your Bank knows what wholesale mortgage rates are; however, the Bank’s rate sheets are marked up to boost their profits when they sell the loans. This markup is Service Release Premium. Because the Banks are exempt from the Real Estate Settlement Procedures Act, they are not required to disclose this markup.
Bank employees will show you their Bank’s mortgage rate sheets, often swearing there is no markup. Ask your Bank representative to pull up the weekly yield on Fannie Mae’s website and explain the difference between Fannie Mae’s yield and the Bank’s rate sheets; they won’t be able to give you an explanation.
No one would disagree that people should be paid for their services, and mortgage brokers and banks are no different. Of course it is easy to see how these guys are paid. Just look at the closing statement on your loan document. It is right there – the Origination Fee, which is the fee charged by a lender to prepare loan documents and qualify the house and the buyer for the deal. This fee is usually computed as a percentage of the face value of the loan. But is that all? Not usually, and it is often impossible to know what the broker and/or lender is really making on the deal.
The SRP is to banks what the YSP is to mortgage brokers. In other words, the SRP is the markup banks add to their mortgage interest rates to make a hidden profit from borrowers. At least mortgage brokers are required to disclose the YSP somewhere on the HUD-1 Disclosure Statement. The Real Estate Settlement Procedures Act (RESPA) does not require banks to disclose the similar SRP markup because banks are exempt from the legislation. Accordingly, you will never know how much you are overpaying on the mortgage with your bank.
Testifying before the Financial Services Committee, Marc Savitt, President-Elect of the National Association of Mortgage Brokers (NAMB), agued that the YSP “helps many consumers who are ready to own a home but have to overcome the hurdle of significant closing costs, or for customers that choose to realize the savings of keeping their cash and financing their costs through their loan rate.” Savitt reminded the committee that rules issued by HUD in 1992 drew an “artificial line” between YSP and SRP since HUD requires originators to disclose YSP on the good faith estimate and again on the HUD-1 but shields the banks’ SRP from similar scrutiny.
So maybe the real issue should be why Congress continues to allow banks to rip off consumers by allowing them to hide profits on loans (SRP-Service Release Premium).
Mortgage Brokers have been disclosing there profit margin (YSP) for years and the same should be for the Banks (SRP).
Lets the facts speak for themselves and have a level playing field for all loan originators to disclose equally SRP or YSP.
Mortgage brokers earn their compensation when they find their customer a loan and follow the transaction to close. Lenders create mortgage products, determine the type of risk they are looking for and pricing of that risk.
The White House proposal shifts the risks of their underwriting failures to the mortgage broker without an increase in compensation for that shift.
As stated in the White Paper, ‘the financial crisis was triggered by a breakdown in credit underwriting standards in subprime and other residential mortgage markets.”
In another words Fannie Mae, Freddie Mac, The Banks & Wall Street put the mortgage programs and guidelines on the Street for the Consumer not the Mortgage Broker.
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NAMB Responds to Financial Regulatory Reform Plan
The Plan aims to overhaul current regulation of financial firms and markets, and provide new tools for the government to manage potential future financial crises. More...
http://www.namb.org/namb/Default.asp
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http://online.wsj.com/article/SB124178775264900689.html