Is using a broker a really bad idea when trying to refi to a Harp 2.0 loan?

I recently applied for a harp 2.0 loan thru a broker. My present loan balance is $109,000. He sent me a work sheet demonstrating a 3.62% fixed loan using the harp 2.0 (that allows them to use expanded loan to value guidelines. Closing costs to be estimated at $2,800.30. Now suddenly, I have received another document from him which he wants me to sign, with a lenders name on it stating the following: 1) Loan Transaction: to obtain a 30 year fixed FREDDIE NO MI of approx $113,200.00 with a term of 360 months. 2) "Broker Compensation from Borrower": that the fees listed are due and payable to us at closing as compensation for services rendered to you in obtaining your loan. The lender does not impose this fee; however, the Lender in connection with all the finance charge disclosures will disclose the fee on your HUD-1 statement at closing. You authorize the payment of the fees referenced below directly to us by the Lender from proceeds of the mortgage loan. 3) Broker compensation from Lender : For the services we provide to the Lender, assuming the fees in (2) above to be zero, we can earn up to 3% of the loan amount. The Lender may take this compensation into account in setting the interest rate it may offer you on your loan. 4)Total Broker Compensation: Based either on #2 or #3 above and the loan amount set forth, we may earn a total fee on your loan of $3,113.00, not to exceed 4% for Borrower paid Broker Compensation, or if Lender paid Broker compensation, not exceed 3% of your loan amount. End... now, having read over this, I can only assume I was about to get really screwed over here. Am I wrong?

2 Answers

Believe it or not, that is pretty standard verbage for brokered loan disclosures. In the past, brokers earned "yield spread" from lenders on loans by marking up the interest rate, and that yield spread was disclosed on the final settlement statement. Process was simple, disclosed, and minimal confusion was involved.

Now HUD requires brokers to show that borrowers get that credit for accepting their rate and the broker then charges borrowers that amount for facilitating the loan. Same net process as in the past, just more cumbersome, and obviously confusing. Thanks, HUD. It's interesting that most lenders now have to resort to "cost worksheets", "loan estimates", or some other version of the previous Good Faith Estimate to explain the prospective loan to borrowers, since the new HUD mandated disclosures are both difficult to understand and much more lengthy than the older versions were. HUD has made a fairly simple process into a difficult one, confusing borrowers while obstensibly trying to make the broker compensation process more transparent.

No, you just have to find the right broker. If you are working with a broker they must disclose to the penny the commission made on the loan.