Please allow me to vent. The stuff we hear come out of the media’s so called “experts” never ceases to amaze me. Take the following excerpt from an article (there were many others I could vent about) from a well known financial web site:
The yield-spread premium
One dirty little secret of the mortgage industry is the yield-spread premium. In return for arranging loans with inflated interest rates, some brokers receive fattened payments — referred to as the yield-spread premium — from lenders, says Allen Fishbein, the director of housing and credit policy for the Consumer Federation of America, an advocacy group.
Even a slight difference in rate — say, 6.779% instead of 6.495% — amounts to nearly $17,000 in extra interest over the life of a 30-year, $250,000 loan. To avoid getting suckered, ask your broker whether the lender pays a flat rate or a percentage commission based on loan terms. Also, obtain a copy of your credit score and use Fair Isaac’s MyFICO.com to get a realistic estimate for a fixed-rate mortgage based on your score.
Dirty little secret?! Inflated interest rates?! Fattened payments??!! These people have NO IDEA what they’re talking about. Now, I’m sure your 1st thought is “of course he’s upset, he’s a mortgage broker”. The TRUTH is, I would have no problem with these “experts” (yes, I feel I must use quotes each time I use the word “experts”) objectively educating the consumer. But the bantering you read above does no such thing. In fact, printing this is irresponsible.
Here’s more of the truth: mortgage brokers are in fact compensated, in some cases, by the yield spread premium paid to them by lenders. Yield spread premium is synonymous with commission. I didn’t realize that earning a commission in one’s business endeavors was such a travesty. I’m pretty sure many other professions earn commissions, but please, correct me if I’m wrong. The real question is: what are you getting for the commissions paid? Are you getting a fair interest rate at fair prices (i.e. loan fees)? Are you getting the education and attention to detail you expect for one of the most important transactions of your lifetime? Are you getting the communication throughout the loan process so as to ensure there are no surprises?
If you’ve not received these benefits as part of your home loan process, then perhaps you’ve obtained your mortgage from the wrong company, whether or not there is a yield spread premium or a “flat rate” or any other form of compensation.
Most folks don’t realize that over 2/3’s of all mortgages are obtained through mortgage brokers. I have enough confidence in consumers to think that if mortgage brokers were ripping people off, this would no longer be the case. You see, while we are generally compensated by yield spread premiums, we can, in most cases, provide the same, if not better, rate and fee structure than any bank or credit union. And just as importantly, one would receive a level of service with our firm that they’ve never experienced with any other mortgage lender.
It is simply false to say that yield spread premiums automatically equate to higher rates. As in any industry, there are bad apples who do take advantage of this system, but the majority of us are doing everything we can to give our clients the absolute best combination of rate, cost and experience as we possibly can. We would be unable to continue our business if we thought this was not possible – our conscience would not allow us to.
So, if you come across an article or listen to an “expert” on television discussing this subject (or any other for that matter), be sure and take what they say with a grain of salt. Not that you need to be told that now days.