Thursday, November 10, 2005

YSP & SRP

I think in this stage of the mortgage industry, more and more people are focusing in on YSP & SRP. YSP is short for "Yield Spread Premium" and SRP is short for "Service Release Premium". What are these? Yield spread premium is a compensation paid to a mortgage broker in exchange for providing a loan to a customer at a certain interest rate above the posted "par interest rate". For example:

If today's par rate was 6%, this means that the mortgage broker could offer you an interest rate on your mortgage of 6% and he/she would not receive any compensation from the bank for your loan. The mortgage broker would need to charge you as the borrower directly for their fee in the form of origination points or broker fee(s).

Let's say that the mortgage broker offered you a rate of 6.5% and you accepted. Well today's par rate is 6%. Well in exchange for giving you a loan at a higher rate, the bank will offer the mortgage broker a Yield Spread Premium of 1.5% of the loan amount if he locks in the rate today. On a loan amount of $200,000, that is $3000 in YSP that the mortgage broker is given by the bank at closing.

Now, a few things to keep in mind. First, YSP changes daily with the posted interest rates. Also, the longer the duration you lock an interest rate, the lower the YSP the broker receives. In exchange for a longer lock in period, you may have to pay a fee directly to the broker at closing or increase the interest rate to compensate for the lower YSP.

How do you know how much a mortgage broker receives in YSP?
Look at your Good Faith Estimate closely. It is usually reflected as a POC (paid outside of closing item). Also, look closely at your HUD settlement statement at closing to make sure the fee is close to what you were disclosed. If the YSP is higher, than you probably could have gotten a lower interest rate. If it is lower, look at the other fees on the HUD. Make sure the mortgage broker did not make up the difference in "junk fees". <--- that is a post for another day Is the par interest rate the same for everyone? No. A par rate for a person buying a home with 20% down and excellent credit might be 6%. If you change the perameters of the loan, you could very well change the par rate. There are adjustments for things such as loan size, the amount of down payment, whether you are refinancing or purchasing a home, if you are taking cash out at a refinance, your credit score, and so on. Now the "par rate" is considered a wholesale interest rate. You can get the par rate and pay an origination or broker fee. Ask your mortgage professional how this is possible.

For more information on wholesale interest rates and yield spread premiums (YSP), please visit the "wholesale interest rates" page on my website by clicking here.

What is SRP?
SRP is similar to YSP but it is paid to banks when they sell the loan on the secondary market. The other difference is that the banks DO NOT have to disclose the SRP to customers period. Banks usually receive more SRP than an ethical mortgage professional would receive YSP on like transactions. Usually, you will receive a lower rate from a mortgage broker that is receiving YSP on a loan that you would at the bank. At least, if you are working with an ethical mortgage broker.

So the moral of the story is, the bank is not offering a better deal. Find an ethical mortgage broker and keep him or her for life. You will not regret it.

Posted by Jason Lash at 9:22 AM 0 comments

Tuesday, November 08, 2005

Bankrate.com...

I came across a website I found through Bankrate.com this morning that has pretty much made me irate. I am glad I have a place to vent. I often visit Bankrate.com...... wait. I think I will start off with a brief explanation of what Bankrate.com really offers.

Bankrate.com offers a service to potential home loan and mortgage borrowers free of charge where you can enter your state, city and loan scenario to find out interest rates. After you enter in this information, you will be brought to a screen where dozens of mortgage broker shops display their prevailing interest rates. These mortgage brokers pay a substantial amount of money to have their information listed in order to get leads (or potential borrowers). Occasionally, you will see a stray bank or two listed among the brokers.

If you ever have tried this service, you will see that the majority of mortgage brokers offer a rate that is often times ULTRA LOW compared to the bank rates. Have you ever wondered why? It is called "Bait and Switch". Today I noticed that a mortgage broker on Bankrate.com listed their rates at 5.375% for a 30 yr fixed with no points or origination fees (the average rate without points is 6.25% today). I went directly to their website and yes, they are advertising that rate there as well. Let me be the first to tell you that this is an outright deception. I have access to the same rates as these mortgage professionals and unless you are paying 4-5% in points, you are not getting this rate..... period.

Why do they do this?
If I am offering a realistic interest rate at 6.25% and they are quoting a rate a 5.375%, who would you apply with? The person offering the lower rate. It's okay, admit it. No one is judging you. If I didn't know any better, I would definitely look into it. The sad thing is that after several weeks of processing, paying their application fee, and an appraisal fee, if they came back and said your loan was approved for a rate of 6.375%, would you take it? Now keep in mind that your closing is in 5 days, you have forked over $600+ for the appraisal and application fee, and you are closing on the sale of your old home in 3 days and the new buyers are moving in next week. Would you take the loan? You bet you would. Don't shake your head no. You would take it. Oh by the way, you have to pay a 1% origination fee now..... did they forget to mention that to you?

It is services and mortgage swindlers like these that make my it hard for people to trust the real professionals. Folks, be careful of services and brokers that offer the "too good to be true" rates. They are too good to be true and sooner or later, you are going to pay for that decision. Be very careful to request and meticulously review a good faith estimate PRIOR to paying any application or appraisal fees. If you need a second opinion, let me know.

If you would like a fair and HONEST rate quote or if you have a mortgage question, please give me a call or visit my website at Virtual Loan Pro. If you are not a Michigan property owner and would like the name of an honest and ethical mortgage pro, email me. I would be more that happy to assist you in any way I can.

Posted by Jason Lash at 11:58 AM 0 comments