J. Philip's Westchester Real Estate Blog: New York Times Hates Mortgage Brokers

J - Treat yourself to a week of no newspapers.  You'll feel WAY better.  I promise.  I just wish we could get potential home buyers to do the same.  Laraine

I think at this point it could be said most people hate mortgage brokers!

NYTimes has to write controversy topics or their newspaper won't sell. They are running out of story of how the Real Estate market is bad, so they have to start attack others. Very typical media.

J - thanks for posting.  I love Mortgage Brokers!!!!!  Serously, we're an easy target.....especially when media outlets look for blame or other issues they deem newsworthy.  Thank goodness, clients can disern through their BS and appreciate the role professional Mortgage Brokers play in providing homeowners options.

Cheers

Its focusing blame and distractions from the root causes and avoids discussing the real issues with the market meltdown.  They could be a strong voice for positive change but that's not going to happen.  The saddest part is people actual will believe the garbage.

Rather than ignorantly (and hypocritically) decry that mortgage brokers have the audacity to profit from their commerce, the Times should support a sensible system of licensing all loan originators.

Dude, you're one of the few that gets this but licensing ain't the answer.  Licensing is the "new" wall behind which the rogues will hide.  I've seen the worst securities brokers operate within the scope of the law but treat customers horribly.  Licensing protects the industry from consumers not consumers from the industry.

That way, those loan officers have something to lose if they hurt a borrower.

A sullied reputation, in the age of Yelp, et al, can serve that purpose.

Then, other responsibilities can be placed on their shoulders, such a those of a fiduciary, which is the same as securities and real estate salespeople.

Okayfine.  Let's assume my non-licensure movement is too grown up for the average Joe.  Do we license the bank originators?  They'll cry no and that would be okay with me; I'd use that license as the biggest marketing message in the world.

eg:  ONLY a licensed mortgage broker can TRULY look out for your best interest; banks just care about profit.

Philip, it is a distinct pleasure to see you grasp this stuff.

PS:  The Gray Dead Lady should be indicted for a price-fixing scam with that most recent article.

J Phillip- you nailed it!  Mortgage Brokers are the best friend a client ever had.  We are able to offer the client a variety of choices- exactly what this country was founded on (as you said, capitalism).  Those of us who are true consultants and truly give our clients these choices are hurt by the ignorance of today's media.  Active Rain is so important, because it gives homeowners a source to go read truth, written by those who are actually in the industry.

Hey Phil,

  This is an excellent post which points out once again that these people who spout off and write articles about brokers simply have no clue as to what they are talking about.  Unfortunately, your post will not be read by as many people who read that stupid article.

Hi J. Philip -- I agree with most of what you say, and in theory, your views.  That said, I have a friend who "was" a loan officer with a mortgage broker, and in 05-06 he was making 120-140K per year, with 2 years experience, a high school diploma, and before that he was waiting tables.  I know many Ph.D scientists who are trying to solve global diseases who make 80-90K per year.  Capitalism? Yes.  Does this mortgage broker add the same value to his/her buyer client as others?  I'm not sure in all honesty, as I think that the overwhelming majority of buyers don't know a thing about YSP, how to accurately and timely compare apples-to-apples.  I just don't think it's that simple for many consumers.  I find it perplexing and I'm a real estate broker, so how can the average consumer figure it all out?  There is a huge lack of openness, knowledge and transparency when it comes to the mortgage industry and I think this segment has a long way to go towards transparency, knowledge transfer and consumer empowerment.  As a REALTOR, I think my industry as just as far to go as well, so I'm not the pot calling the kettle black.

That said again, there are a minority of exceptional loan officers who serve their clients very well.

I just finished the Times article you're reacting to and don't share your sense of outrage at the Times piece.

The article concludes, "There can be no real reform as long as mortgage brokers can be offered kickbacks and other incentives to steer often naïve borrowers into loans that put them at risk the moment they sign the papers."

In your estimation is that statement valid? I think it is.

Here's an excerpt from the middle of the piece:

"Many brokers do legitimate work that helps homebuyers sort through competing loan proposals and make good choices. In those cases, the fees they get from lenders — typically 1 percent or 2 percent of the loan amount — are fully justified. But many others, attracted by obscene profits associated with the subprime lending binge, did not act in a fair and ethical manner. Congress is finally seeking ways to rein in these brokers."

I don't like how the writer used the term "many" instead of a phrase such as "the vast majority of"; however, the piece isn't concerned with mortgage brokers.  The writers are concerned with a specific breed of mortgage broker. 

The article then discusses how such brokers were able to capitalize on the YSP to STEER the naive homebuyers into loans that were most advantageous not to the buyer, but the mortgage broker.

I think we can all agree on the unethical nature of such behavior.

I understand your reaction to the editorial and I do not read every piece the NY Times publishes about mortgage brokers.  They may, as you suggest, have a vendetta or, at minimum, a bias against you and your colleagues.  However, I think that once you realize that the Times is taking issue with SOME and not ALL, you might react less emotionally.

Philip - I am never surprised at what the media will do to prove a point or to make news, themselves.  I agree with Laraine - a week with no newspapers does wonders for the soul.  (It's hard for me, however, because I am addicted to the news!)  I find life goes on without reading some of this garbage that upsets me!  Thanks! 

J Phillip - You get it, my man!  The articles didn't much surprise me.  The media's knowledge (in general) of the Real Estate and/or Mortgage Industry is about as thin as Patrick Stewart's hairline.  And to Terry Haugen above, I ask why you write such a thing in your comment?  Seems to me that line of thinking is a short-cut to thinking.  I hope you don't fall into that category.  

I think at this point it could be said most people hate mortgage brokers!

Except, of course, you need money to buy or refinance a home.

Phil,

There always has to be a villain, because if there isn't, people will have to start taking responsibility for themselves, and that simply wouldn't be the popular thing.

New York Times "BITES" the hand that FEEDS them in desperation.

They truly "HATE" Small Business but need their ad $$$$$$$$$$$$

They need to take their Bankrupt IDEAS an Go Bankrupts and Their entire Board of Director and Corp ., Officers need to Go Broke and work as Loan Brokers *&* Real Estate Brokers and see if they can make a  Living ? Doubtful-!!!!!

We need a House cleaning at the "TOP" of "AMERICA fron Business to all the Higher Education to to ALL Billion-$$$ companies (Like the FRENCH REVOLUTION with Gilateens (Not sure on spelling) and rid our selves of enslavement and Domination by Blood-sucking "Elitetis'"-The Major Bankers-And the Criminally insane Higher Education -Bankrupting the Ideas and Beliefs-of the Fouders of "America based on Freedom-The Consitution-&Bill of Rights. 

Philip,

It's rather bizarre that mortgage broker compensation is being used as one of the main reasons the real estate market tanked. The real perpetrators are staging attacks to deflect any blame.

These people are not journalists - they are socialist minions.  The Times piece has to be one of the most rediculous, uneducated commentaries I have ever read.  I wonder where that little blowhard received his indoctrination.

Daren- My objection to the editorial is more rooted in their stance on the yield spread premium. It is eliminating the commission. Banks do the exact same thing, only they aren't required to disclose it. And it works the same way- the higher the rate, the higher the commission. The editors don't seem to grasp how originators are paid. And when you don't get it from as lofty a perch as the Times editorial platform, you shouldn't propose reform for a process you don't understand. 

It's like them proposing that the only real way to stop the sexual abuse in the Catholic church is to stop altar boys from dressing so sexy. From the presupposition to the conclusion, it is embarrassingly flawed. Yet many who read the Times will go for their words hook line and sinker, because they are the Times.

On another note, my older brother lived in Round Rock in your neck of the woods for many years. I spent the Summer of '87 rowing on Town Lake. Austin is a great town.

wow.  what a poorly written editorial.  You are correct when you stated that most of the programs that the NY wants to protect us from aren't even in existence.  Furthermore the way that loans are priced these days don't really make these outrageous "kickbacks" possible.

I never got the whole villanization of YSP premium anyway.  1) it is disclosed by brokers and not lenders and 2) I can't think of any thing else that you buy where the amount of profit the salesperson or seller is making is disclosed. 

I am not against licensing but I don't think that will help much either.  So you have to study for and pass a test.  Maybe they should license idiot Congressman and Newspaper Editors instead? 

Michelle

I agree licensing won't help solve all the problems. It hasn't solved the problems with bad/poor realtors.

J: Thanks for the post. Whether it's a broker or a banker, the bottom line is integrity by the lender. If the mortgage broker/banker is upfront about how they get paid, what's the problem? These days, every mortgage broker I know has to disclose YSP; it's right on the loan docs. And YSP right now is tough to come by anyway. I was discussing this with our secondary marketing coordinator. It's a sign of the times. Regarding licensing, I think it's a good idea and disagree with Brian on this. One of the mortgage brokers in my office couldn't get a license because he had a warrant out for his arrest. He was passing bad checks and the licensing system caught him. Most of us in the business are honest and forthright. It's the few that always ruin the fun for the many. Recently there was a huge scam uncovered in our area. It was before mortgage brokers had to be licensed. Yes, these people may have passed their test and still perpetuated the fraud. But it makes you wonder if they would have passed a test. After all, alot of people didn't or chose not to pay the money and take the continuing ed. What we do should be in the best interests of our client always. The one thing that  bothers me about our industry is the emphasis on making money and, unfortunately, it's occasionally at the customer's expense. Call me altruistic but I always felt if I provided top-notch customer service the money would come. Again, thanks for you post. Sorry for the ramble. You're on the right track. It's easy to point fingers when everything has gone awry. Take care.

Newspapers are in the business of shock and awe....as that is what sells.  The more the negative shock the better the sale.  It is not a belief it is a reality.   The stock market goes down 500 points we freak out.  It goes up 500 points, we feel relieved, but we are not going nuts about it.  We banned our city newspaper years ago and each time they call us for ads we tell them that as long as they try to bring our industry down, we are going to bring you down.  This has been the case since the invention of the newspaper and it won't go away even if newspapers become totally electronic.

Wow. The sense of denial on this site is absolutely astonishing. Realtors claiming no responsibility for the housing crisis whatsoever, loan officers proclaiming their innocence while racking up commissions beyond belief, appraisers stating that they HAD TO bring inflated values in or else they'd lose their livelihood. Etc.

Here's the deal.

3 points YSP on a $600,000 loan is $18,000 no matter how you slice it. And there were sooooo many lenders doing "no cost refis" with these programs....paying the escrow, appraisal and 'whatever fees' totaling $5,000 out of the "commission" and then pocketing the remaining $13,000. The 22-year old loan officer who'd been in the business for six months, made 80% of that, equaling $10,400...and he/she was doing at least 10 a month. $100,000 a month to cheat borrowers?? Woohoo!! What a great country we live in!!!

You can call it "capitalism" all you want.

And if that's your out...then I can't wait until you have to pay $112.00 for a gallon of milk, $47.00 per gallon of gas, and $912.00 for your monthly cable bill. Hey...it's a free country, right?? No one should tell you how much you can make on a loan...nor should anyone rant if your dinner at McDonalds tonight costs $619.12. After all, they have the right to charge you whatever they want.

By the way...please don't come back with the response that you'd have the choice to eat at McDonalds or not at those outrageous prices. The argument doesn't hold any water. 95% of lenders across the country were overcharging, so choices were limited at best. Besides, anyone who takes the position that "if the borrowers don't want to get screwed by me...they can simply shop elsewhere" I find totally repugnant.

I also find it inconceivable that a lender worth his salt can justify putting people in bad loans under any circumstances. Whether those loans are available anymore or not is immaterial. It's the mindset of the predatory lenders that the article is eluding to...and condemning. And I agree with them.

I spent many years in the mortgage industry...and in years past, our top loan officers made very nice livings on a 1% origination fee plus maybe a half point overage (by the way, the Times article mentions that they think this is completely fair too.) BUT...somewhere along the way, loan officers and their companies found out that if they can get away with 3 points origination plus a YSP of 2 points...then why not?? Think of the money we can make!! And who cares if the loan is good for the borrowers or not??? They're the ones signing the loan docs...so I'm off the hook. Oh wait, did I actually tell them about our other loan products??? Or did I steer them into this one because of the financial reward?? Hmm....can't remember. Oh well.

Nonetheless...5 points on one deal is criminal...period.

And you have the audacity to say that borrowers share in the blame because they didn't shop around?? LOL!! What a crack up!! Yeah Mr. Borrower, if you don't like the terms (or don't fully understand this loan)....then go down the street and start all over again. Pay for a new appraisal and new credit report, but beware....you'll likely get sold down the river by that company too because the thievery is epidemic.

::: shaking head in disbelief :::

We do agree on licensing however. Licensing should absolutely be mandatory, if for no other reason than to prevent the vultures from landing another job in the industry should their license be revoked. But until we leave our sense of entitlement to "make whatever we can" on a deal...the mortgage industry will be looked upon with disgust and disdain for years to come.

Heck, the poor thief at 7-11 who steals a $1.29 bag of chips catches more grief than the loan officer who justifies his $10,000 commission on one loan. Incredulous!

You mentioned in your original post a pass-the-buck finger-pointing at the consumer by stating that "You can't legislate common sense". That's too bad, isn't it?? It's so true too. But...I hope the government CAN find a way to legislate common sense, common decencies, and common business ethics back into the mortgage industry.

For all of our sake.

What a ridiculous blog.

NOTE: If you were NOT a predatory lender during those times, and you treated people with fairness and common decency...the above does not apply to you. But if you took advantage of unsuspecting borrowers...and simply now chalk it up to "capitalism"...I can't help but wonder how you can look in the mirror or teach your kids about anything.


Guest

Guest-

Who is in denial? What is being denied? YSP is how originators are paid. 

You offer an outrageously unlikely example and then extrapolate from there. In my experience, people shopped rates. They didn't need to pay for an appraisal or have their credit run to get a quote and good faith estimate. As a matter of fact, we seldom even got an application filled out and signed without verifying that we were worth working with from the vantage point of fees and rate. 

You are also way off with that $5000 kickback example also. YSP has to be disclosed on the HUD-1 and has to be shown as being paid from the lender to the broker. A bank, which doesn't have to disclose their fee, could get away with that. A broker would never get the title company or bank attorney to OK it because it would be an illegal kickback. 

Let's suppose, for example that I was able to price a $600,000 loan at a rate where I would get a 3 point YSP. Of that $18,000, $9,000 goes to the broker, who is not giving any back, period. I'm going to give the borrower 5k and end up with 4k in my pocket? 

I don't know any 22-year olds that were pulling that stuff off. Moreover, sub prime lenders topped their YSP off at 2 points, which even the Times agreed was a reasonable fee. That leaves the $600,000 loans in the conventional realm, where people were more likely to shop rates. 

Sell that stuff elsewhere. I ain't buying. 

J. Philip,

You're not buying what??? That loan officers put borrowers in 7% loans instead of 6.5% loans because their commission earnings would have been less on the 6.5???? Don't kid yourself....or be that naive.

And YSP is, indeed, how lenders get paid. But YSP was designed to give homeowners who couldn't handle or didn't want a bump in their mortgage amount (LTV issues, PMI issues, etc.) a means of refinancing their home with no closing costs added to whatever their existing payoff was (or purchases where they didn't have the extra funds for closing costs available). Those loans were NOT intended as a substitute for common sense lending...or for allowing mortgage lenders to rake in megabucks on a single deal.

My example was not outrageous in the least! In Southern California, the example I gave was repeated thousands of times. And if you think upfront quotes by a mortgage lender count for much when it comes time to fund the loan...you KNOW that you're sadly mistaken. Borrowers wound up with loan products priced higher and/or with terms much different than they were quoted in the beginning...and you know it. Perhaps YOU personally didn't do it, but you HAVE to be aware that a huge majority throughout the industry did.

I also didn't give a $5,000 KICKBACK example at all. How'd you come up with that?? The only $5,000 I mentioned referred to the actual closing costs associated with the loan that the lender paid from their share of the proceeds. Title, escrow, etc. That's what enabled them to offer "no-cost" loans. They paid the closing costs. But out of $18,000...if the closing costs were only $5,000 and the lender profited $13,000...I personally believe that's inconsistent with fair lending practices. They should have given the borrower a lower rate where the YSP paid the closing costs....and gave them a decent income for doing the loan. The rate would have been much lower. BUT...they didn't. They closed the loan at the higher rate...and pocketed the excess.

I also find that it's YOUR example which makes no sense. If your broker kept 50%, and you had to pay closing costs out of your own personal commission...then even you were getting screwed by your broker!! LOL...maybe you were also a victim of "capitalism". I don't know a single loan officer who worked for 50% during those times....nor did any of them pay for closing costs out of THEIR share of the commission. That's an absurdity.

The gross commission was received by the broker....closing costs were paid on behalf of the borrower....and the balance split between loan officer and his employing broker. If you only earned 50%, then you didn't negotiate your contract very well. There were, indeed, countless 22-year olds in the industry who had commmission splits tied to closing volume...and 80% splits were not uncommon given the lending climate at the time.

I also know all too well that a broker must disclose YSP on the HUD-1....and I believe it's incredibly unfair that direct lenders don't have to. What a load of bull THAT idea was! When that legislation passed, I remember reacting in total disbelief. We agree on the unfiarness of that.

But the Times article points out the following:

The numbers are startling. According to a 2008 analysis by the Center for Responsible Lending, subprime borrowers who went through brokers actually fared worse than those who went directly to lenders. Borrowers who used brokers coughed up additional interest payments ranging from $17,000 to $43,000 for every $100,000 they borrowed.

NOTE: The Times didn't do the study. They were simply relating figures found in a 2008 analysis done by the Center for Responsible Lending.

It goes on to state:

Lenders were, of course, complicit, happily issuing high-priced loans to people with little or no hope of repaying them. But it was often the brokers who steered borrowers away from affordable loans and toward the high-priced loans in the first place.

I don't think those numbers are refutable, are they??? And I completely agree with brokers steering borrowers away from the good loans in favor of lining their pockets. I saw it hundreds of times myself.

But...if you have any statistics that refute the numbers found in the study, I'd love to see them.

However, if not, I ain't buying...and you should sell that stuff elsewhere.

::: smile :::

Guest

Guest- YSP was designed to pay the originator. Your definition is derived completely from your own mind. 

The lender can't pay closing costs from their share of the proceeds. In a refinance, all closing costs would be financed, so it would make no sense. In a purchase, it would be an illegal kickback. Maybe there was a way to circumvent it in california, but it would be unthinkable in New York. 

Nobody is arguing that there are bad brokers, but there are also bad bankers and bad dog catchers.

Eliminating the YSP means the broker works for free or is forced to charge points. That's not sustainable. That's my point. Much of what you say beyond that is arguing over things that aren't really points of contention. 

Interesting article from the New York Times here: http://www.nytimes.com/2009/04/04/your-money/mortgages/04money.html

It's not a very favorable one, that's for sure. Actually...having been on both sides of the fence in my career (mortgage banker and mortgage broker)...I can say that I don't feel the article is justified in general. I know just as many crooks who work for mortgage bankers/direct lenders...as I do who work for mortgage brokerages. It's not a company or industry-segment philosophy so much as an individual choice made on the part of each loan officer.

Okay...having said that, let me respond to your last comment.

YSP absolutely was NOT intended solely as remuneration for the loan officer. For you to say that is bewildering, and totally misleading to both Realtors and the general public who may find this blog via a search on the internet. You can find articles all over the web describing how YSP can and was often used to offset loan closing costs. By the way....for those interested, don't bother visiting the NAMB (National Association of Mortgage Brokers) site. ALL PAGES HAVING TO DO WITH YIELD SPREAD PREMIUMS RESULT IN PAGE NOT FOUND ERRORS. Oh my....how convenient is THAT????

ROFL!!

And don't bother going to the New York Association of Mortgage Brokers website either, as they don't address the term "yield spread premium" at all. Perhaps that's why mortgage brokers across the country are so woefully inept in explaining what YSP ACTUALLY is...(or was)....intended for. "Designed to pay the originator" is a misstatement if ever there was one. Perhaps if their industry didn't tuck the issue away, and instead addressed it openly and honestly...consumers (AND LOAN OFFICERS ALIKE) would have a better understanding of the term....it's intended benefits....and its unfortunate abuses. It's become obvious that anyone who got into the mortgage industry within the last five years was trained to believe that YSP was their inherent RIGHT as income, instead of the potential cost-saving means of providing lower cost homeownership to those in need.

J. Philip....your second paragraph above is just as inaccurate as your first. A lender absolutely can pay closing costs out of their proceeds. It's not a kickback whatsoever. It's incomprehensible that you're taking that stand. Go read any of the FHA, FNMA or Freddie Mac Selling Guides. Follwing is a better explanation for anyone interested:

According to the Department of Housing and Urban Development, yield spread premiums serve a purpose by helping to reduce closing costs. In return for a higher interest rate, yield spread premium allow borrowers to pay lower fees at closing. This option helps low-income borrowers to be able to buy a house without having to worry about the huge closing costs. The majority of loans with yield spread premium, the fees are used to offset the borrower's closing costs. The mortgage broker pays the borrower's closing costs with the YSP. The difference is what the mortgage broker earns.

The problem with the above explanation is that it's idealistic. Virtually all mortgage brokers saw it completely differently, as evidenced by this whole blog context. They viewed YSP's as ways to earn more money.

And yet they continue to clamor about their rights, their lack of wrongdoing or culpability in the housing crisis, and that it was "capitalism at its best" instead of simply learning the facts, accepting accountability, and moving forward.

Over the last week, I've read numerous blogs on this site...from supposed experts...that have been woefully inaccurate. What a shame that AR has such Google juice. These blogs could be a welcome and valuable resource for consumers to learn more about the industry and make educated decisions. But when so many have it so wrong...it becomes a laughable disgrace, and more of a showcase of "what NOT to believe."

I still aint buying what you're selling....and you may want to check your facts before making a decision to delete this blog in its entirety.

Guest

Guest-

That quote is unsourced. 

A LENDER plays by different rules than a broker. And if the YSP has such altruistic reasons for existence for things beyond compensation to the originator, then you too, should be concerned that the Times calls for it to be outlawed. Without the YSP, the  broker can only charge points to be compensated for their work. If your associates made such a good living getting only half a point on the back while charging a point up front, then on a $500,000 loan the borrower was financing an additional $5000. I don't see how that makes you such a nice guy. 

If you have such credibility, start your own blog and sign your own good name to your message. Otherwise, you are just an anonymous troll.  I originated loans for 7 years for brokers and bankers alike in the State of New York. Your adversarial tone and unsourced assertions speak for themselves. 

J. Philip,

Information on YSP's can be found all over the internet. Perhaps here is one you'll trust and believe in. It was somewhat hidden in a PDF on NAMB's (National Association of Mortgage Brokers) website. If you want to continue fighting the intended use I refer to, take it up with them, not me.

*********************************************************

Here is the text from their site:

Yield Spread Premium ("YSP")
Sustaining a Competitive Mortgage Marketplace & Offering Consumers Choice

"Myths vs. Facts"

Myth: YSP "came into play" around the mid-1990s.
Fact: YSP has existed from the time loan origination services expanded out of the S&Ls and the banking industry moved away from keeping loans in portfolio. Called different things over the years, YSP came to the forefront in 1992 because of a HUD ruling under RESPA. This ruling required only mortgage broker transactions (those that do not fund and close loans in their name or those that table-fund) to disclose YSP on the good faith estimate ("GFE") and again on the HUD-1. Today, an overwhelming number of loans are sold onto the secondary market and securitized immediately after origination. As a result, this ruling has created an artificial distinction between the YSP earned by those that "originate" transactions and the service release premium ("SRP"), or gain-on-sale, which is earned by those that "originate and fund" transactions and then sell them. Because of this artificial line, today there is intense focus on the YSP but little understanding or discussion of the SRP or gain on sale. This is despite the fact that prior to the 1992 HUD ruling all three were considered one in the same-indirect compensation paid to the originator by either the lender or the investor in return for services performed and the value of the loan. The lines drawn between these forms of compensation are based on "industry jargon," not function.

Myth: Only mortgage brokers get paid YSP.
Fact: Every originator that does not keep loans in portfolio is paid compensation; it's just called something different for each distribution channel. YSP = SRP = Gain on Sale. YSP is a payment by a wholesaler 1 to a retailer 2 in a broker transaction in return for operating costs absorbed, services performed, closing costs financed, if applicable, and/or the value of the loan. SRP, or gain on sale, is what the lender, banker, or wholesaler receives as payment from the investor/secondary market-again, for costs absorbed, services performed, the financing of any closing costs, and/or the value of the loan. In today's market, the real difference that exists between SRP, gain on sale and YSP is that only YSP is disclosed. SRP and gain on sale is not disclosed anywhere, anytime-this is back-end compensation that remains undetected and therefore, has escaped scrutiny.

Myth: YSP is a "bonus" payment.
Fact: YSP is how mortgage originators get paid for the loan origination services they perform when a consumer does not want to pay any, or only some, fees upfront. YSP is also a legitimate and legal way for borrowers to forgo paying their closing costs upfront and instead, finance those costs through the interest rate. YSP finances these fees and costs through the rate and so a consumer is paying a higher interest rate. When the consumer chooses not to pay any origination fees or closing costs upfront they are receiving what is known as a no-cost and/or no-fee loan. These loans are offered widely by both broker and retail lender channels and made available because the YSP and SRP compensation structure exists. 1 Lenders who have certain loan origination functions performed for them by mortgage brokers. 2 Lenders who perform all of the loan origination functions in-house.

Thus, the YSP is beneficial for 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. Choosing to finance closing and origination costs through the rate allows borrowers to purchase and start building wealth through their home without requiring significant outlay of cash at the onset of the loan.

Myth: YSP encourages steering and unjustified increases in the loan rate.
Fact: Brokers operate in a competitive marketplace and must compete on service, product and price. To be competitive, brokers can not simply increase their interest rate on a loan product in the face of all this competition. The internet, newspapers, TV ads and sheer number of loan originators in the marketplace makes it difficult, if not impossible, for any originator to charge higher fees or rates than the market supports and still remain in business. In addition, there are a number of variables that go into qualifying a borrower for a particular loan product. Qualification of borrowers, especially of non-prime borrowers, can be tight. Therefore, it is not so easy to increase the rate on a loan without negatively impacting loan-to-value and debt-to-income, among other underwriting factors, and triggering a potential disqualification for a loan.

Myth: Broker customers pay more on their loans because of YSP.
Fact: Broker customers pay less than they would if they obtained the mortgage through any other source, including retail. Brokers receive what is known as a wholesale price on any particular loan product. This price is unavailable directly to the consumer. The wholesale price is increased to retail to take into account origination costs as well operating costs (i.e., administrative plus brick and mortar costs associated with conducting business in a particular locality) to reach the actual interest rate that the customer can obtain. Mortgage brokers are primarily small business professionals. Small business entities usually have smaller overhead and administrative costs than their larger retail counterparts. Even with their origination and operating costs included in the rate, mortgage broker customers tend to receive a more competitive interest rate and loan program as compared to borrowers of these other larger channels. This is why mortgage brokers have originated the majority of mortgages in the U.S.

Myth: Banning YSP will eliminate steering and protect consumers from abusive practices.
Fact: Regardless of what it is called, banning YSP will: • Destroy the small business broker industry. YSP is how brokers are most frequently paid for their services on many loan products. No one can work for free for very long, if at all. • Eliminate choice and increase costs to consumers significantly. Without the small business broker there will be fewer market participants, resulting in less competition and less choice, which will cause upward pressure on price. In short, all the broker business will be pushed to competitors, placing those entities in a market position to charge even more to the consumer. • Legislatively pick winners and losers. With brokers unable to earn YSP, they will be prevented from assisting those consumers that are unable or choose not to come to the table with anything less than a 20% down payment and full closing costs and origination fees. Consumers looking for a no or low-cost or fee loan will be forced to turn to other competitors. • Create a market distortion pushing brokers to get a wholesale line of credit, thereby enabling mortgage brokers to earn a SRP rather than YSP, similar to their industry counterparts.

Myth: YSP is not in the interest rate; YSP does not allow shopping.
Fact: YSP is not an additional charge. It is part of the interest rate and included in the annual percentage rate ("APR") calculation required to be disclosed under the Truth in Lending Act ("TIL"). APR is the primary shopping tool used by consumers today. YSP is disclosed and is included in the APR. SRP and gain on sale is NOT disclosed, but it is included in the APR.

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Kind of a long read...sorry for that.

By the way...I AM concerned that politicians believe YSP should be outlawed. It will greatly impact a borrower's options when financing real estate. But I've also come to realize that the government overreacts. They don't comprehend the real issue...and consequently derive very poor solutions. Hopefully, someone will steer them the right way...but I doubt seriously that it will be YOUR industry. To argue altruistic intent....when for years the mortgage industry was lining their pockets with excess income seems somewhat...what's the word....funny??

Back when I was in the mortgage business, loans averaged $150,000. A point and a half was $2,250.00 and my top loan officers earned 80% of that ($1,800). They also closed 15-20 loans a month and made huge incomes for those days. But they worked their butts off, and didn't make $10,000 per loan. They were respectable, hard-working, ethical loan officers...and very nice people, thank you very much.

And in reply to your last paragraph...

I DO have a TON of credibility. I know this business better than most...and the only reason I sometimes have to write under a "ghost name"....is because I'm prominent in successful real estate circles. However, don't let the lack of a name cause you to condemn a differing viewpoint.

Your blog was only used as a forum because I feel it's unfair to present what comes across as authoritative information....when in actuality, it's wrought with misrespresentations. You're the one who put it out there for public consumption and commentary. The onus is on YOU to ensure the accuracy of your information.

But if it's too hot in the kitchen for ya....and my tone has you bothered....I'm at least glad you conclude and recognize that my correct assertions speak for themselves.

Troll?? LOL!!

Let's see if you have the fortitude and sense of self to keep this post intact.

Cheers.

Guest

Well, Mr. LOLROFL.

Thanks for the unsourced, unlinked quote, as the first bullet point proves my point as do most of the rest.

State laws are applicable, of course, and in New York kickbacks are illegal. Interesting how you still want to argue, since you have quietly conceded that YSP is not unethical, is quite necessary, and crucial to how brokers are paid. 

Even the biggest names in the business have the guts to sign their name!

Have a great day yourself!

;-)

J. Philip,

Unsourced??? Really?

I thought for sure that I mentioned the information came from NAMB's very own website??? Let me go back and check.

Oh...yep....right there, plain as day. Here's what it says:

Information on YSP's can be found all over the internet. Perhaps here is one you'll trust and believe in. It was somewhat hidden in a PDF on NAMB's (National Association of Mortgage Brokers) website. If you want to continue fighting the intended use I refer to, take it up with them, not me.


It was hard to find, as most of NAMB's pages come up with errors. But maybe errors are something that are somewhat inherent in your industry???? Certainly appears so.

Nonetheless, if you absolutely have to have the link... or are unable, unwilling or ____________________ to complete a search for the information yourself, here it is:

http://www.namb.org/images/namb/GovernmentAffairs/R.5%20Yield%20Spread%20Premium%20-%20Myths%20vs%20Facts%20_Jan%2023%202008_.pdf

I didn't initially paste it 'cuz it's kinda long. But there it is....your own Association refuting what you've been arguing about all day. Geeeeeez!

You're right about one thing. I do NOT believe that YSP, used ethically and morally...is a bad thing in and of itself. But I stick to my guns in my conclusion that anyone who shouts from the mountaintops that it was only ever intended to be their own personal commission...is either ignorant of the facts, self-serving with how they choose to ignore information readily found across the internet...or simply a rogue criminal (or perhaps a combination of the above).

Lastly...

Guts?? Guts is admitting you're wrong...and are willing to learn or benefit from someone who's been in the business longer or knows better. I do a lot of business on this site...and with as sensitive as many people are when "called out" (I've been through this a time or two)...it's in the best interest of my company for me to remain anonymous. It's just the way it is.

Heck...you and I may do business together one day.  And when we do...you'll be none the wiser that we had this little shoot-out while I proved my point.

(Hmm...THAT almost makes ME feel unethical. LOLROFL!)

Having a great day,

Guest

Nah, sorry.  The YSP compensates the broker when the borrower doesn't want to pay THEIR fee. From the link you provided:

YSP is how mortgage originators get paid for the loan origination services they perform when a consumer does not want to pay any, or only some, fees upfront.

Your source, not mine. And you first stated that YSP was DESIGNED to absorb closing costs for the borrower. Your own source refutes that in black and white. That isn't the primary function of the YSP, it is very tangential. It is so arcane I wasn't even aware of it, and I highly doubt you could do it in New York at that. 

There are too many other ways for borrowers to avoid coming up with cash for closing. They'll get the seller to absorb them in a purchase or roll them into a refi, where the purpose is rate and term anyway, and a higher rate would be antithetical. 

I'll concede the idea exists. You did your good deed for the day, albeit in an unecessarily priggish way. Regardless, no more from you until you ID yourself. If you are uncomfortable doing so on my blog, email me.