Last Tuesday I published an Op-Ed in the Boston Globe about mortgage companies that pay brokers to sell higher priced mortgages to customers. (E.g., a customer qualifies for a 6% mortgage, but the mortgage company pays the broker a higher fee to sell him a 7% mortgage.) I called the payments "bribes" paid by the mortgage companies to the brokers to boost mutual profits at the expense of the homeowner. I was in good company. The Vice-President of the Fannie Mae Foundation called them "kickbacks." After the op-ed was published, I was flooded with hate mail. It was so bad that when there was no let up by the end of the third day, I thought I might have to change my email address.
Some of it was funny ("your stupid"), weird ("I thank God my son went to BU instead of Harvard"), or silly ("you must be a Communist"). But most of the correspondence fell into three main buckets:
- This never happens; you are making this up
- This happens sometimes, but it is a few-bad-apples problem
- We all do this; it’s how we make money
There were some very thoughtful comments. Several brokers correctly pointed out that the banks have ways of doing the same thing, but it is even less visible. Others said the disclosure has become a bad joke that doesn’t help anyone. The most interesting letters were from the ex-brokers who said they couldn’t stand making money by jacking up mortgage rates for families already stretching impossibly hard to buy homes, so they quit.
A letter to the editor was restrained by the standards I’ve seen on my email. The president of a mortgage company made two points: Only a small number of brokers do this (Bucket Two above), and it is all disclosed up front. (I checked with another broker today who said that the full YSP is not disclosed until, at most, 24 hours before closing, and then only if the buyer knows to ask, and nothing in the disclosure links the payment to the broker with the fact that the rate is higher than the one the buyer would qualify for).
The letter also argues for Buyer Beware Big-Time. It seems that it is the customer’s responsibility to police the broker to make sure the broker isn’t cheating.
If you think the practice doesn’t happen, look at a rate sheet and explanation.
I don’t have any data, but I’m willing to believe that the practices I described are not the norm and that most brokers are ethical agents. But shouldn’t the ethical brokers want regulations that shut down the unethical brokers? Why be forced to compete with someone who cheats? And why not work to build a good reputation for mortgage brokers everywhere?
Comments
52 responses to “Hate Mail”
It is interesting how differently both sides interpret the “yield spread premium”. As a renter and a prospective home owner, you know which side I am on !!
As a novice, where do I go to educated myself about mortgages? I am looking for an independent, non-biased source with serious number crunching examples. I heard good things about the book by Randy Johnson “How to Save Thousands of Dollars on Your Home Mortgage”.
Any pointers / references would be greatly appreciated.
thanks.
I still dont think you got it.
If my borrower gets a quote from Bank of America for a loan at 6.75% and I can get him the same product at 6.50% and the lender I broker the loan to wants to pay me a point on the back end, who cares so long as I got the borrower the best available rate?
Having brokers disclose YSP is like asking Wal-Mart to put their profit margin on all the items they sell. I don’t understand why it is so hard to understand that YSP is how a loan goes from WHOLESALE rate to RETAIL rate.
Consumers are going to pay either points, YSP, or a combination of both. A loan without YSP does not exist unless the consumer is willing to pay significant points on a mortgage (most are not). Paying points to get a lower rate does not always make sense financially.
Please let us know how brokers disclosing YSP benefits consumers? If I am making 2 points on a loan at 6.5% and competing lender is making just 1 point at 6.75%, how is a consumer better off by taking the loan with less YSP? If the consumer shops for a mortgage and my 6.5% is the BEST rate they are offered, why does it matter that my YSP is 2%?
Brokers cannot inflate YSP in a competitive market (i.e., the consumer aggressively shops for a mortgage). It simply is not possible. If a broker is trying to make 3% in YSP on a transaction that most reputable brokers will do for 1%, ONE PHONE CALL to a competitor will uncover this just as if Best Buy is over charging for a Flat Screen TV, a quick call to Circuit City will uncover it.
Brokers are upset with your column because it completely misrepresented the facts as to how brokers are compensated and how the wholesale mortgage channel works. Your column was like someone writing that all attorneys only care about billing for hours that aren’t worked or will file frivolous lawsuits to make defendents settle since it cheaper than defending themselves in court. Oh wait, there are some attorneys who do these things… maybe we should have investigations into how attorneys are compensated? A wet behind the ears Harvard law grad just out of school and no real work experience really can’t be worth $160k per year?
Most brokers have absolutely no problem disclosing YSP because at the end of the day, most consumers could actually careless as what matters to them is not what I am earning in compensation, but what their final interest rate and fees will be on the loan.
Miss Warren,
Politely understand that you JUST AREN’T GETTING IT!
You’re treating YSP like it’s a bad thing. There’s an alternative to YSP and that alternative is that clients pay all the fees at the closing of the loan. 70% of the purchases in the Unites States wouldn’t have been possible, over the last few years, without YSP. It’s a way in which the BANK can pay the borrowers closing costs. It’s what enables mortgage brokers to get paid for what they do, without the client having to foot the bill.
Please understand just how ignorant you sound to those that do this for a living. If you want to educate yourself, take a few years of your life and LEARN by DOING. Don’t catch wind of some fancy acronym (YSP) and automatically draw fire. It really makes you look foolish.
Kindly,
David Kendall
Remken Financial Corporation
Mortgages/Project Funding
Domestic and Abroad
Ms. Warren, it obvious, your “hate mail” was an effort by professional in the mortgagebroker business to educate you on how yield spread premiums actually work. Yes, it is monies paid as compensation to the broker, but also in many cases the ysp is used to help a cash poor customer pay for closing costs on their first home purchase. Likewise it is the mark up between wholesale and retail. Same as any toher consumer product.
Is your paycheck to write your “op-ed” cloumn a bribe? Is the difference between what walmart pays for a gallon of milk compared to what they sell it for considered a bribe? I think not. You have joined the rest of the panderers that want to villify brokers.
I’m very disappointed that an educated professional can’t seem to wiegh all sides of a story. What you consider “hate mail” wouldm be considered by open minded folks as constructive criticism.
Feeling the pressure so you’re ready to cave in?
Regarding your post, Forget about #’s 1 and 2, they do not apply to mtg. brokers. I would say that 99.9% of ALL mtg. broker originated loans have a rebate paid out. These aren’t little bribes, they are 100’s,$1,000s and many times 10’s of thousands of dollars. These are additional fees for no more than 4 total hours of work. These people have no skills, minimal training, little education,(certainly not a finance or business degree). Many have a high school education or less, terrible credit, a BK in their history, and 0 brains. Do borrowers realize that they are paying these people $1,500.00 and more per hour to make a couple of phone calls, take a 1003, and send it through an AU system! Go to the broker blogs and read things like, ” I can’t wait to do FHA loans because I can charge 7% rebate”.
I’m not a mtg. broker but I make my living selling them products and services. I’ve worked with these idiots on a daily basis for 15 years and can attest to the “dumbing down” of the industry.
Hey mtg. brokers! If you think you add any value RE transaction, why not elimnate the YSP, guarantee a closing cost total, and charge a fair origination fee. Make it all binding and totally visible. If you are worth all that you claim you are, people won’t mind paying for quality fair service. You don’t need to hide.
Ya I suck but guess what, it’s going to be the law of the land real soon. So it’s back to Walmart for you.
Elizabeth, you wrote a great article. It’s too bad that you don’t have the guts to stand by it.
Russ and David,
I think I’m about to puke.
Now tell us Russ and David, how many “stated income” loans have you done over the years for W2 borrowers? If your answer is 0 then we might believe what you have to say otherwise…
the gravy train is over for you guys and Angelo too.
Yield spread is a way for a broker to offset fees charged to the borrower at closing. Retail lenders to the same thing. They just don’t have to disclose it. Brokers routinely provide their customers with more choice, better rates and superior customer service.
Ms. Warren, did you read what you wrote? You made a very insightful statement about yourself, “I don’t have any data…”
Mr. Seth Ramsey, I am a mortgage broker. I have a BS in Business and a MBA degree. I spend anywhere from a few hours to many days or weeks working on a specific transaction depending upon the complexity of the deal. I complete many hours of continuing education every year. My pay is often “cut” due to state regulations which federally chartered bank, S&L’s and credit unions do not have to abide to. By the way, I also have a credit score above 800.
Professor Warren,
You make me glad I never went to Harvard. Your Op-Ed piece shows you know nothing about banking or how money flows in this country. I won’t go as far as calling you a communist but you are ignorant about economics (it’s apparent you failed Econ 101) especially for a professor at one of this country’s premier universities. If you are passing your ignorance on to the best and brightest of this country, then we are surely doomed to go the way of the Roman and British Empires. The later by the way, developing the current lending structures that most banks use such as the LIBOR Index. You do know what that is don’t you?
What you don’t get, is banks do charge YSP or an SRP. The difference between the bank and the brokers who is the bank doesn’t legally have to disclose it. Mortgage Brokers at least have to disclose that it’s there and we receive it. Banks have been doing it that way for over the last century. So what brokers do is no different then banks.
As mortgage brokers, we deal with a lender or a bank’s wholesale division. Unlike when you walk into a bank you are dealing with their retail division. What you neglected to mention in your Op-Ed piece is that when a mortgage broker charges that 2% Yield Spred Premium it is generally an eighth to a a quarter point lower than the bank’s retail rate. As an experienced mortgage broker, I can generally beat any bank’s retail rate and I do it on a continual basis.
In your Op-Ed piece you blamed mortgage brokers for the current mortgage crisis. Again, it shows your ignorance about American economics. Do you have any idea how mortgages work in this country? Brokers sell products offered by lenders who then sell these loans on the secondary market. They sell them to servicing companies that are either run by the major banks or by private funds which borrow the money from pension funds, hedge funds and mutual funds. There was a demand on Wall Street for mortgages and the American consumer was happy to oblige. In the September 24th issue of Newsweek, which I read while taking my morning constitutional, former Fed Chairman Greenspan said when asked if brokers were responsible this crisis he responded, “You had Wall Street securitizers basically then talking to mortgage brokers saying, ‘We’ll buy what you’ve got.’…The big demand was not so much on the demand of the borrower but on the part of supplier.” In other words, if Wall Street didn’t offer these programs and the debt ridden American consumer didn’t want them, I wouldn’t be able to sell them.
In the late 1990’s, lenders offered 125% financing to people with C and D credit. People refinanced their homes in droves and the foreclosure rate quadrupled. But no one said a word in the corridors of Harvard or in the editorial boardrooms of the Wall Street Journal or the Boston Globe. Why? Because all of this was all unimportant because property values were increasing 10-40% annually depending on what part of the country you were in. Money was cheap and people wanted to cash in. The common man began to believe the Gordon Gekko mantra of “Greed is Good!” They bought the big house, the plasma TV, the BMW. All of which was leveraged against the home. The home that was just a shelter, now through the creative wonders of marketing could now serve as your personal bank. But while the consumer was living the lifestyle that would make even Robin Leach envious, there was a problem in the midwest. This problem caused property values to plummet. Homes were fully leveraged. The consumer couldn’t refinance because their values were gone. This caused foreclosures to increase tenfold. This created a cascading effect across the country which caused the housing market to crash.
This problem was simple. Manufacturing jobs and other jobs were being outsourced overseas and oil prices began to increase. The two major weaknesses of the American economy. We don’t want to produce anything here any longer and we are dependant on foreign oil. That and the fact that the glutonous American consumer has turned our god given right of the pursuit of happiness into a nightmare. We have become a nation of spoiled and morbidly obese children demanding immediate self-gratification. The comsumer is as much to blame for this crisis as Wall Street is and no self-imposed or federal regulation would have stopped this crisis from happening. The late Canadian Prime Minister Pierre Trudeau once said, “It is not government’s responsibility to regulate morality or to regulate sin.” If I remember Sister Mary’s teaching from my second grade catecism class, glutony is one of the seven deadly sins.
Steve Dibert
Bob:
I will gladly put my resume up against yours any day. I have a undergrad business degree as well as a MBA from arguably the best business school in the country. I also have a number of years working at very prestigious consulting firms. In my office, we have former attorneys, traders, surgeons, corporate execs who are top producing mortgage brokers.
While I am sure you have dealt with some of the used car lot types, realize the vast majority of us are not like that and are very well educated and look out for the well being of our clients.
It sounds to me like you are jealous since you can’t hack it as broker. Just so you know, I can count on one hand the number of stated income loans I have done over the past five years. I have never had a loan go into foreclosure either.
I find it amusing that you can’t address the points that have been made logically or factually, so you just resort to personal attacks.
Ms Warren,
As many of my colleagues have mentioned, you still obviously just don’t understand finance or economics. What difference does it make if we are making money on Yield Spread, if we are still giving clients a better deal than what they would get at a bank?? If you would understand the concept of retail vs. wholesale, you may get this…but judging by how you have yet to even come close to grasp the concept, I doubt it. So, even though clients could go to say a retail bank like Countrywide, Wells Fargo or someone along those lines, and pay 6.75, with nothing disclosed, because its SRP, and we could take the customer through the SAME lender, only on the wholesale channel, make 2 points YSP, and still beat the rate, with the SAME lender..we are doing the client wrong??? Please explain!
By that theory, car dealers should sell cars at the same price they get them from the auction. McDonalds should sell cheeseburgers at the cost of production, and Wal-Mart should do everything at cost! Do you see why you are getting the communist comments??
As for Seth, I do have a BS in Finance. I’m guessing by your response, you really know nothing about doing a loan for a customer whatsoever. But you did say you sell services to us…were you the guy that stopped by trying to show us your vaacum cleaner presentation last week???
From my yield spread premium I pay 1/4 point for your fico, 1/4 because you dont want impounds, 1 point because you are self employed and cant provide your tax returns and 1/2 point because you want cash out.
Yet you dont want to pay any points.
Show them THESE rate sheets, Ms. Warren.
Russ,
I suppose the whole subprime meltdown is occurring because of the few isolated brokers who put their clients into ill-advised loans, right?
Fees are fine. I don’t have a problem if the broker gets paid a fee for finding me a better rate for the SAME PRODUCT. I’d let someone else pay an mortgage broker a million dollars if that broker can get me an identical loan for a lower interest rate.
However,
The problem as I see it is that IF a broker shows me an ARM and a fixed rate alternative, I want to know how they are compensated on those two products.
If they get paid more for an ARM than a fixed rate loan, I need to take that into consideration when they are explaining to me WHY the ARM is better than the fixed rate loan. If there is a differential in what a broker is paid, they are not necessarily looking out for my best interest. Financial incentives can be quite powerful.
If they get paid the same either way, I would feel better about trusting their advice–although with an ARM, they are more likely to be getting a call for my business again in the relative near term, while with a fixed rate loan, I may not call them for a decade or longer, so the “same rate test” won’t always get you an unbiased opinion from your broker.
The best advice is to figure out where your risk tolerance lies, choose the type of loan accordingly, and stick to your guns–don’t let any broker tell you what KIND of loan to get unless they are willing to sign on the dotted line with you.
All you mortgage brokers,
Try to step back and see the bigger picture.
Why does a client come to you? Not to watch out for themselves. They come to you for *you* to find them the best loan.
They likely have no experience and don’t know how to estimate what they can pay. Many probably have never heard of the rules of thumb (such as debt to income ratio being 3 at most etc).
When you do not strongly discourage them from taking loans that history has shown will result in foreclosure with high likelihood, you are neglecting an implicit fiduciary duty than most clients expect of you (even though you aren’t currently legally required to provide it).
Put this in perspective. When you go to the dentist, do you expect that you need to go and verify that the filling material used is the best for the type of cavity you have? No, you take it on faith that the dentist has your best interests in mind or they would be liable for malpractice.
When you optimize for your own profit over the client’s benefit, you violate that trust. When you claim that the lender provides a higher yield spread on a loan that will result in better terms for the client (meaning that the bank gets the raw end of the deal both ways, i.e. less money in interest from the client *and* pays more money to the broker), you’re not making any economic sense.
You actually believe the doctor or a dentist doesn’t maximize his profits? Do live in a fantasy world? Of course he does. You may not pay it directly or never see the bill but he does it.
By federal and state law we have to disclose that we get paid YSP. A Bank does not. I have to disclose all third party fees. A bank does not. Have you ever shopped for a mortgage comparing a broker and a bank? Probably not. If you did, you would find that the rate the bank quotes you is comparable to what the broker is quoting with YSP.
Sure Doctors and Dentists maximize their profits, but they do not maximize their profits at the expense of their patient’s health unless they want to get sued.
They can push you to a drug, or a procedure where they get paid more, and they will ESPECIALLY if the patient doesn’t see that cost. But, if they do so without full, honest disclosure regarding the risks/rewards of the drug/procedure vs. other treatment options (that may get them less money), they will be sued, and they will lose.
This is perfectly analogous to the broker situation. Brokers can absolutely maximize their profits, but if they do so without full disclosure of the risks and rewards of the various options, and ultimately the borrower’s financial health suffers, that is a major problem.
I don’t want to curtail broker’s fees. Brokers are a necessary part of real estate on a number of fronts. If you can help get a deal done in tough times, you should get paid even MORE!
But, if you are giving a customer two options that are quite different (and may be both be better rates than what you would get directly from a bank for the same products), it is VERY relevant what you are being paid when the customer is weighing your advice in their decision.
Ms. Warren,
You deserve every piece of hate mail that you got, because you wrote a slanted editorial with absolutely minimal understanding of your own topic. You further skewed it by hand-picking the few friends that you interviewed and bypassing leaders and representatives of broker associations.
Perhaps you should ask yourself why a lender would have the ability to offer YSP in the first place?
Perhaps you should research what SRP isandexplain why that is not a ‘kickback’, especially since lenders are not required to disclose it to anyone, including to the Broker?
Perhaps you should ask yourself how a consumer who cannot pay for closing costs would be able to get a home?
Perhaps you should ask yourself why only the rich, beautiful, and ‘perfect’ people in the world deserve to own a home?
Perhaps you should ask yourself how many homes would be owned by people who aren’t ‘perfect’ if their only alternative was to walk into a local bank?
Perhaps you should ask yourself why a Broker is barred from collecting a fee upfront and should not get paid for the hundreds of loans they work on that do not close, working for free on over 95% of their ‘clients’?
Perhaps you could explain why every single business in the entire world is allowed to charge a profit, but a mortgage broker should not?
And perhaps you should ask yourself why a lawyer (such as yourself) does not have to return a fee for a lost case, or provide an advance written estimate of their fees and total costs of the lawsuit, or is able to charge a retainer upfront, or charge 40 dollars to send a fax, or is perfectly willing to accept money from a person who admits guilt right to their face?
So, if someone does not pass one of the good Professor’s classes, I assume that they are fully-refunded for that class?
J’accuse!
YSP is not a problems, figure this without this the client would pay points, and it takes 5-7 years to recover any upfront fees. Secondly the average borrower refinances before 5 years. Banks also have SRP or back end profits, the only difference is they do not have to disclose. The bottom line is the actual rate the borrower that they will receive. Brokers vs Bank it is about the same, although a broker can shop many banks and typically get a better rate overall. I as a mortgage broker went with a back end YSP to pay my closing costs and no upfront fees out of my equity or pocket. One must look the the whole picture before making such comments. Mortgage professionals understand this, by the way a broker can become a direct lender and do th same loan as a bank with no disclosure but the same rebate back, does this make it better or worse???
Oh, perhaps we forgot to mention the main thing that Ms Warren doesn’t understand, and completely misinterpreted….about the Us “steering” borrowers towards ARMs when they can qualify for lower fixed rates. This is what caused you to lose any credibility. Thing is Ms. Warren…any client that qualifies for a good fixed rate loan..we are going to put them in it…why? Well, one it is a better deal. 2…GOOD RATE FIXED RATE PROGRAMS PAY US MORE! its not even close to be honest. If someone got an ARM, it was because they were in a bad situation, and didnt qualify, and was the best thing for them. No broker in his right mind that knows the business whatsoever, would but someone on a subprime loan, if they qualified conforming, unless it was teh best deal for the customer, because we actually make LESS money on them, contrary to what the expert of the mortgage industry says. By the way, I hope you make your students do more research on papers for your class then you did yourself in this horrible, idiotic article
Elizabeth, how do you think that brokers should get paid? You are putting all brokers in the same crowd of dishonest theives. What do people say about attorneys? Should we all assume they are blood sucking leaches?
It sounds like you actually think you are some kind of mortgage consumer advocate. And I like the way you continue to ‘Select’ your information to collaborate yourself at the same time you continue to “Paint us Dirty” And who the heck are you to post wholesale rate sheet and who gave it to you?!
You are Evil and Scarey and the sad reality is you even think you have right on your side……Whew!
All in my humble opinion of course
…”In my office, we have former attorneys, traders, surgeons, corporate execs who are top producing mortgage brokers.”
You crack me up dude. You have surgeons working as mortgage brokers !! ROTFLMAO
How come no Rocket Scientists work at your place? Maybe they are busy selling used cars.
Thanks for the laugh though 🙂
Ms. Warren,
Maybe if you could spend a day (more would be better) in a broker’s office and a banker’s office. We face pretty much the same issues. I may have better products than the broker, but the broker is almost always going to be able to beat me on price, unless I cut into the bank’s posted rates. Bankers rely heavily on realtor relationships, probably more so than brokers. Brokers can pull the loans in on just rate alone.
We co-exist in the same industry and we need each other, because no one entity can do it all. Trust me, these guys and gals work with some labor intensive files to get someone approved. I am not talking about the no doc or option arms, I am talking about the wage earner that has had trouble with credit, possibly even behind on a few accounts, but if they bought, they could hang on to a lot more take home pay.
Bankers do not have the ability to do long term credit counseling or work with buyers working on their credit. That is what CCCS is for, or any reorganizational debt management agency. Brokers fill that middle gap and almost all of the bankers have a broker or two (yes, subprime) they send customers to see, customers that want to proceed, even after the banker has told them they most likely will need to pay higher than market rates for a couple of years to show that they can handle the payment.
The world has gone off on too deep of a tangent against subprime. Over correction. Now, everyone is almost paralyzed. Let me give you an example: Last month Fannie revised the way they qualify an interest only loan, particulary ARMS. I was working w/ a single mom of an autistic child trying to purchase in the WashDC area. I found her a long-term ARM, interest only, at 5.25%. Yes, there were points, but the builder was willing to help.
This borrowers loan was turned down because her back ratio on the interest only, which qualified at index plus margin at 7.25% hit 53% (actual payment ratio was 37% on the IO 5.25%). She had over 75K in the bank afterwards and was a civil service employee, on a fast-track super-grade promotion program. Her earnings were detailed to increase, but could not be counted. Loan denied on DU, Fannnie’s underwriting engine.
HOWEVER, once I switched her loan to a 30 year fixed at an amortized payment $600 higher, I was able to get this loan approved. She was now a 49% back ratio because my qualifying rate dropped from 7.25% to 6.75%.
Her credit score? 742. Professional. Excellent rent history. No one, not one person could make sense of this for me. We have penalized the wrong people and have over-corrected. I then had the pleasure of trying to explain WHY I COULD GET HER APPROVED AT A PAYMENT $600 HIGHER THAN THE SEVEN (7) YEAR ARM SHE APPLIED FOR.
It’s still broken.
There are also 3 huge fallacies in Ms. Warren’s attempt at an expose:
1) The mistaken assumption that Subprime lenders give more YSP than a Prime lender, which is absolutely 100% false.
2) The mistaken assumption that any lender gives more than 3% in YSP.
and, most importantly…
3) Posting a Rate Sheet as ‘evidence’ without knowing how to read one. Now, Ms. Warren, the burden is upon you to explain to the public exactly what you are hiding from them… ‘Rate Hits’. These are adjustments that SUBTRACT from the YSP a Broker can get, even such as to nullify it completely. You, of course, failed to mention this when you offered up that sheet for viewing. My guess is because you either DIDN’T KNOW or DON’T WANT ANYONE ELSE TO KNOW. Either way it affects your credibility on the matter as you are either badly uninformed or just being a sleazy amateur journalist looking for an angle.
You are doing nothing more than blaming a preacher for an expensive wedding, when the blame is actually upon the two people who decided to go through with it by saying “I do”.
Did you, or should you have, consulted with the Massachusetts Division of Banks to educate yourself and your target audience of the mandatory disclosure we, as brokers, provide every client with?
For example: The “LOAN ORIGINATION AND COMPENSATION AGREEMENT”. Here is the exact language on this disclosure word for word:
SECTION 2. OUR COMPENSATION. The lenders whose loan products the Mortgage Broker distributes generally provide their loan products to the Mortgage Broker at a discounted interest rate.
– Your interest rate, points and fees offered to you by the lender may include our compensation.
– In some cases, the Mortgage Broker’s compensation may be paid by either you, or the lender, or some combination thereof. For example, in some cases, if you would rather pay a lower interest rate, you may pay higher up-front points and fees.
– Also, in some cases, if you would rather pay less money up-front, you may be able to pay some or all of our compensation indirectly through a higher interest rate in which case the Mortgage Broker will be paid directly by the lender.
– The Mortgage broker may also be paid by the lender based on services, goods or facilities performed or provided by us to the lender.
In my experience with working with Massachusetts borrowers, when given complete explanation with a written breakdown including pros and cons to the scenarios, most would opt for not paying any fees.
When reading the language of the disclosure it seems pretty straight forward wouldn’t you agree?
Giving them a choice is my responsibility. Explaining in complete detail is my responsibility.
Why wasn’t the main point of your article about trying to help consumers with their choices like we do with our clients everyday?
There is no one loan program that is right for all borrowers. Everyone’s circumstances are different. Everyone’s goals are different as well.
Just yesterday I was able to obtain an interest rate of 1/2% better from a National Lender on the wholesale side versus what they had put into their print advertising on their retial side. The same product from the same lender but at considerable savings. The broker has to disclose all fees but the retail would not. If access to the broker channel was not available, the only choice would be the higher rate and your article would ensure that they would be receiving loan terms that are far worse.
Mortgage brokers are thieves everyone now knows this or should. Too bad they had a good thing going but got way too greedy and now we have a housing Bubble Pop and the Government is going to step in and Regulate it. let me now how that works out for you all ?
Ms. Warren-
Well, you got one thing right.
“I don’t have any data,…” That was the brightest thing I have seen from the two writings of yours I could stomach reading. You are probably asking yourself, why are all of these people condeming me so much. You cast the first stone Ms Warren. Look at yourself in the mirror. You obviously don’t know what on earth you are talking about. You obviously don’t do research before spewing garbage about a topic you have no knowledge of.
By the looks of what you wrote it looks like you needed to meet a quota of “published” articles for the year and heard something on the news about mortgage fraud and thought you would write it.
By what your thinking is, you are the “bad Broker” of the teaching profession. You are exactly what you are labeling us brokers as. You are worse because you are using a position of percieved authority and knowledge to project some underlying personal motive. How is what you do any different than what I do? PLEASE tell us this. How is it different to get paid a high fee (salary) to put people in a worse knowledge base than they were previous to taking a class from you. If you teach anything like you write (with “no data”) then why should you get paid a fee for that? You are taking advantage of the people that take a class from you.
If you think it is so important to disclose what I make for a living, then why don’t you post what YOU make for a living? Let’s have it! How much? What is the difference? I’ll tell you the diference, I DO disclose how much I make on every single client. I tell them directly that the bank pays me a fee to place loans with them. I make money on YSP. Not on every loan, but on most. And, when I do I let my clients know that and I disclose it up front! You are no different than anyone else except for your arrogance.
As I have stated in previous emails, you should truly be ashamed of yourself
Thor E. Smith
Matcom Mortgage Consultants
Edina, MN
Dan,
Do you know how ignorant you sound? Obviously, your a student of Ms. Warren’s or been smoking the bud in corridors of Harvard.
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K-
I don’t know what is so funny about people from other professions choosing to work as a mortgage broker. The surgeon you doubt focused almost entirely on working with doctors as his client base. Most successful mortgage brokers are able to establish very good relationships with a circle of influence.
Who do you think doctors are more likely to work with on their home purchase? The guy that is a Doctor and decided to pursue residential finance as a career OR the used car lot guy hawking mortgages? And yes, a successful mortgage broker can make as much if not more than a surgeon.
Once again, personal attacks and no ability to refute the post on this blog. Pathetic.
Professor,
Selling rates are same as selling any other goods. Brokers “buy” rates at wholesale price then sell to consumers. Just like Wal-Mart buy goods at wholesale price from China. Does Wal-Mart disclose how much profit they made to consumers? = YSP I don’t think so. You should be praising brokers for showing the customers how much profit we made. Should the customers get Par rate where brokers get no YSP = no income? Should you teach students without getting paid? Should any business sell goods to consumers at what they paid for?
Teach me professor…
Perhaps Ms. Warren doesnt realize that I will be paid the same for an Arm as I would for a fixed rate mortgage. However the rate on the arm would be lower. SO the borrower decides which payment they prefer.
I’m, referring to 3/1 and 5/1 arms.
Not option arms.
I think option arms are a big problem as it appears that some lenders did not disclose how they actually work.
Maybe that is what you are trying to say but it sounds like you needs to spend a few years learning your products and guidelines.
FYI in the future maybe you should learn more about a subject before you write about it . Considering you look like a fool.
Ms. Warren,
I think one of the reasons for the volume of hate mail and phone calls you received was due to your decision to use the term “bribe”. Well, your lack of research or clear understanding of the topic didn’t help either.
Unfortunately, although I’m sure your article was meant to inform, you really did not do a service to the general public. Had you actually spent the time to understand and then explained how rates are determined, and what rates a person may be eligible for, based on their specific and unique situation, you would have gone a long way toward helping consumers, and I believe your effort would have been applauded by most in the industry.
However, your article did a great disservice to people in the mortgage industry, and consumers in general. Yes, there are bad apples in the mortgage industry as there are in any industry. Painting everyone with the same brush is really just wrong, and shows a true lack of understanding or intelligence.
I hope your article doesn’t drive consumers to banks with higher rates, simply because the banks were not painted with the “bribe” brush in your article (although you hopefully understand by now that banks are similarly compensated). But, it may harm many good mortgage brokers who are doing good things for their clients, and simply trying to support a family.
I think you have an opportunity to elaborate on how mortgage brokers and bankers are compensated, and inform the public at large, so the public can fully appreciate and understand how a mortgage rate is determined and what rates a person may be eligible for based on their specific and unique circumstances. I’m certain you can find good information from the state bankers association, and the National Association of Mortgage Brokers, should you really want to understand and educate.
In fact, I challenge you to do the right thing and take this step. But, I suspect you will not. Hopefully, it’s not a “bribe” or pride keeping you from truly educating rather than inflaming.
In response to David Boyd: That wasn’t my quote. I believe you mistook “Bob’s” quote for mine. My quote is the one above. Don’t worry David, I too have a college education and am on your side. I appreciated your enthusiasm though.
Ms. Warren,
Really? I am at a loss for words. It’s honestly people like you that mislead the public with almost every public statemetn you make. You are the sole reason why socitey is the way that it is. Please I beg of you to take off the horse blinders and really look around. Its amazing how ignorance is bliss with you and maybe it’s you that needs to find another calling in life. YOU WILL NEVER GET IT!!
-Wayne
Be careful what you ask for, you just may get it.
It’s a no wonder citizens of this country don’t actually vote for the President, because you don’t know enough to be trusted to do it.
Learn what YSP is and how it is used before you make dumn comments, because without it, you WILL PAY A LOT MORE IN FEES IN THE FUTURE. Be careful what you ask for, you just may get it.
When I hear “your gravy train is over” and “down with the mortgage people”, it really is sad. You really have no idea what you’re talking about.
Do you not understand what drives your Real Estate prices up? Lack of mortgages surely won’t be doing it. Be careful what you ask for, you just may get it.
Where where you crying out when your homes doubled in value over the previous 5 years?
Where were you when every American in the Country had the ability to purchase a home?
Why didn’t you cry out then?
I’ll tell you why. Because you were enjoying it then.
You were enjoying your rise in equity.
Be careful what you ask for, you just may get it.
E.g., a customer qualifies for a 6% mortgage, but the mortgage company pays the broker a higher fee to sell him a 7% mortgage.) I called the payments “bribes” paid by the mortgage companies to the brokers to boost mutual profits at the expense of the homeowner….
Good stuff. The other day I went to breakfast and they charged me $9.00 for steak and eggs but didn’t outline on the receipt how much the food companies bribed them.
Mrs. Warren and any other broker haters.
You guys obviously do not understand how our business work, and what the difference is between an ARM and a fixed rate mortgage. you have no clue what the rate sheet means and what the guidelines are as to know who qualifies for what program. there are many factors besides a credit score to determine the risk of the borrower and what program they qualify for.
As far as the YSP, it is to minimize the borrowers closing cost to keep them under the LTV they qualify for or to not make them bring money to the table because they don’t have it. We either get paid from the borrower up front…resulting in a lower rate. or he doesn’t pay any points and the lender will compensate us with the YSP. it’s all up the borrower whatever gives them the best monthly payment…after all a borrower does not shop for the rate, they shop for a lower monthly payment. Nobody wakes up in the morning saying “I want a lower interest rate” they want to save money by getting a lower monthly payment. i.e a 15 year fixed mortgage rate is at 6% as oppose to a 30 yr. fixed at 6.25% or even a 40 yr. fixed 6.5%. If you think the 6% is going to give them the best payment, then you obviously don’t know anything about how mortgages work, and you should just keep renting.
When Demand = Supply there you will find the price. Money is no different. The cost of money will not be cheapened by abolishing YSP. If you know the industry, an article like this should not threaten your business. It’s simply shocking to find that a Harvard Educated Professor is less knowledgeable than most of my clients. Ms Warren, the only problem with the lending industry is the absence of quality information and your article is proof that you lack the knowledge and resources to properly inform mortagors. With all the competition in the industry, apart from outright fraud, the only thing that separates the men from the boys is sales ability, and thats what this country is built on. Though I admire your intent, I’m selling the empty wisdom
All I can say to the mortgage broker industry, is that the truth hurts. Ms. Warren’s article does not condemn the entire industry, but a portion of it that takes advantage of the borrower, and is not doing the right thing for them. There are many things responsible for the recent fallout in the market and rogue, shady, dishonest mortgage “brokers” are just one of them. Similar to the thousands of unsavory and uneducated people who became stockbrokers in the early 90’s. They lied and cheated customers until the market came to a boil and filtered out the rogue element within the industry. Prison terms and large fines followed. It wasn’t the entire industry, just a portion of it who went out there and made 100’s of calls a day to unsuspecting investors. It’s funny how a majority of those people are now or have worked in the mortgage business. Preying on indivuals with bad credit and more than happy to do loans with large “rips.”
Ms. Warren’s article touches on a part of the industry that some brokers take advantage of. Plain and simple. Once again, the truth hurts. Seth is right on point when he says you should stand by the article.
It amazes me that every company is allowed to make a profit, EXCEPT the mortgage broker. Just like every other business, the consumer has the right to refuse to do business with a company that he/she feels is overcharging him/her. Quite often, I as a shopper will look for the same item for a lower price at 2 or 3 different stores. Did you perform due diligence when “researching” for your article, or did you merely use the points that confirmed your thesis. Upon seeing these responses, do you have any inclination to amend your opinion, or, like most academics, do you fear to admit that you may have made a mistake? There is a word for people who go off half-cocked and draw conclusions with little basis in fact, in order to scare the masses- Republican
The thing is Victor, she mentioned none of that. She is completely unifnormed. This is one of the most hilarious articles I’ve ever seen written. Its pure Michael Moore material its so radical and uninfomred
She’s not required to do so. This was an Op-Ed piece. If anything, getting rid of all these unsavory people in the industry will help the majority of mortgage brokers in the long run. All of a sudden everyone is the ACLU and are so offended by the name she could be giving the mortgage broker industry. Yet most of the posts rip into attorney’s. The bottomline is that any intelligent person knows there are good and bad in every profession. It’s just when it deals with money and probably the largest purchase decision you will ever make, it becomes a sensitive issue. Go buy a box of tissues, wipe your face and go back to work.
Seth and Nate, hope you got a good grade on your homework (the ridiculous posts above).
Please, never buy a car (the local dealership doesn’t pass the rate on to you they get from their lending sources). I assume that all finance officers at auto dealerships are guilty of soliciting brides as well, since the practice is identical. I’m sure that all banks disclose the difference between the rate charged when THEY borrowed the money and the rate at which they lent it to you. Credit card companies disclose your interest rate they charge YOU, but never what never the true rate you qualify for (on that specific day) before the bank marked it up.
I proofread my twelve-year-old’s papers before he turns them in, and they have never been as extremely misinformed, blatantly biased and factually inaccurate as the op-ed piece your SIGNED YOUR GOOD NAME beneath.
Ms. Warren, According to RESPA all Yield Spread Premiums charged must be specifically identified on the Good Faith Estimate and provided to the consumer within three business days after the receipt of a full application by the originator. Anyone who has not followed this procedure has definately broken the law and should be considered shady at the least. However, I can’t control a consumers accuracy to information or the fact that they may ignore my initial requirements not to quit work, not to open new credit and to be totally honest and accurate on the initial application. If they are not accurate then I cannot promise my closing costs to them and probably have to shop them to another lender if i locked them into a rate based on their initial information provided to me. There are many legitimate reasons why rates and fees change during the transaction but only if the consumer needs a different program or has not been totally honest at time of the application. Any other changes are to costs with full disclosure at least a few days before the closing for review is unacceptable and illegal based on Federal Law anyways. Those brokers and originators and even lenders who have practiced this should not be in the mortgage industry and should be prosecuted fully.
I would think that 80% of the mortgage brokers and originators under the brokers license have no formal training at the larger federal regulated mortgage banks like I have. If they had that type of experience most would be able to provide an honest and accurate Good Faith Estimate upfront like the law requires and not change anything unless outside circumstances caused such change like the consumers inability to provide loan accuracy.
My objection to Ms. Warren’s Op-Ed piece is that it mischaracterizes YSP and how it is typically used in the mortgage industry. What consumers ultimately pay for their home financing should be the focus of anyone truly concerned about their best interests. Not how much compensation is being paid to those who help them obtain that financing. Ms. Warren’s perspective, as I understand it, is that lenders’ payments to brokers in return for higher interest rates result in higher costs to borrowers. This focus on the compensation to brokers rather than the cost to consumers is the Achilles’ heel of her argument. And proof that this focus on broker compensation is ultimately bad for consumers is contained in studies done by the FTC in conjunction with HUD efforts to reform the disclosures used the the mortgage process.
Here are some links to the FTC:
http://www.ftc.gov/be/consumerbehavior/docs/LackoPappalardo.pdf
http://www.ftc.gov/opa/2004/02/mortgagerpt.shtm
http://www.ftc.gov/os/2004/01/030123mortgagetextofrpt.pdf
At the April 20, 2007, FTC Behavioral Economics and Consumer Conference, James M. Lacko and Janis K. Pappalardo, economists for the FTC, presented their research on consumer behavior with regard to the disclosure of YSP in the mortgage process. Some of their findings are:
When presented with a less expensive loan from a mortgage broker compared to a more expensive loan from a direct lender, 9 out of 10 times the consumer can identify the less expensive loan. When presented with the same loan options in conjunction with disclosures that emphasize the broker’s YSP compensation only 2 out of 3 consumers were able to correctly identify the less expensive option. Their conclusion is that the emphasis on broker compensation in consumer disclosure can lead to “significant anti-broker bias that may have anti-competitive effects on the mortgage loan market.”
Brokers often provide less expensive financing to consumers compared to well known national banks and lenders by marking up wholesale interest rates from those lenders to obtain YSP payments and offering those financing options to consumers at rates and fees that can be often be less than what the consumer would pay if they obtained that same financing through the retail branches of those same lenders. Consumers are free to shop at mortgage banks or mortgage brokers and there is a reason that more choose to get their financing through mortgage brokers, and it’s not because it costs more. It’s because 9 out of 10 times a consumer can spot the less expensive financing option if not confused by the red herring of mortgage broker compensation.
You are in the legal field. Please stay there because apparently you have no idea what you are talking about. I HIGHLY doubt that you received any type of emails from such individuals. “The most interesting letters were from the ex-brokers who said they couldn’t stand making money by jacking up mortgage rates for families already stretching impossibly hard to buy homes, so they quit.” Because it’s a choice if brokers want to receive YSP or not. There is something called a par rate and there is also something called making a living. I would love to hear what you suggest we do. Do you suggest that we don’t receive YSP and we just charge the client origination so we are really taking the money out of there pockets?!?!?! The banks funding the deals are going to make far more money in the long run then a broker ever will. The bank funding the loan is charging an interest over the full loan term. Have you ever looked at a banks TIL? That’s a TRUTH IN LENDING in case you didn’t know. The lender provides that and let’s say you have a loan for 600,000 you will have given the bank almost 1,000,000 once you’ve paid off the house…I’m sorry…WHO’s BEING predatory? I don’t see what you are suggesting here. I have seen several of the emails that were written to you as MANY mortgage brokers read your little article. And I don’t think you read ANY of them. Because there we’re several points made in those emails then and now as replies to your little rebuttal. And what I see is several Brokers providing you with facts and knowledge about our industry…we’re doing your work for you since you apparently seemed to do such a poor job at it.
Next time…remember mortgage brokers aren’t the ones who came out with the loan programs, terms, rates. Remember that.
As a mortgage broker in Southern CA and with many years experience it has stopped surprising me the amount of fraud in the brokerage world.
Fake rental agreements, cut and paste bank stmts for assets, lying to the borrower, rate/program switch, low balls, “trigger leads” that brokers us to call someone and act as though they had just gotten off the phone with them, deceptive advertising, illegal net branching activitied, unlicensed personel, and the list goes on ad infinitem. There really is no defense of the YSP as it is abused abused and then abused some more. It’s absolutely pathetic.
So because consumers buy cheaper products from overseas they are to blame, is that what you saying Mr. Dilbert? Maybe if the politicians didn’t accept contributions from companies wanting to outsource as many jobs as possible there would be more wage earners in the United States who could afford to buy made in america products.
Why can’t places like walmart reserve some shelf space for made in america products, stores in Canada do that.