Mortgage brokers receive bonuses for selling high-interest loans
Your mortgage broker is on your side, right? Maybe not. According to an article in today's Los Angeles Times, mortgage brokers receive big bonuses when they sign customers up for higher interest loans than what they actually qualify for:
Say a consumer qualifies for a $400,000 loan at a 6.75% annual interest rate and an upfront fee of 1 percentage point, or $4,000. If that same borrower agrees to take the loan at 7%, a lender might reward the broker with a bonus of half a percentage point, or $2,000.
The $2,000 is the yield spread premium. The "spread" reflects the difference between the lower interest rate that the borrower could qualify for and the higher interest rate that he or she actually paid. The "premium" is the reward paid to the broker.
This little known broker kick-back is starting to gather more attention for legislators and law enforcement. California Attorney General Bill Lockyer is a part of a nationwide task-force that went after Ameriquest Mortgage for these deceptive practices.
How you can you make sure you are getting the mortageg rate you deserve? Use online loan calculators to estimate your rates and compare different mortgage offers between a broker, online lender and bank. Don't accept a loan offer without evaluating all the terms and conditions.
What do you think about these kick-backs? Do hard working brokers deserve the bonus? Should it be required to disclose this premium to consumers? Have you worked with a mortgage broker before? Share your feedback in the comments section below.
When we interviewed lenders, we were told to be aware of certain brokers because of those kickbacks. I remember Ameriquest being one of those. I believe Ditech was the other. The lender we ended up with, was the one that was upfront about their fees and such.
Posted by: Emma | March 28, 2006 at 12:14 PM
I quite agree that there are some unscrupulous mortgage brokers. However, I believe the vast majority are honest hardworking people trying to get a good situation working for their clients. These "kickbacks" you refer to are specifically addressed in the disclosures which are given to the borrower. In fact, many times the broker will use yield spread premium to pay some of their borrowers costs. I did not see that mentioned in your article. Also, a mortgage calculator will not secure the credit score which often drives the pricing of the loan. I believe if your going to post information it should be complete. The public deserves the right to know.
Posted by: Gary P | March 31, 2006 at 05:28 AM
During the process of my purchasing my current home, the mortgage broker the previous owner referred (the previous owner is a millionaire) ovbiously thought I was STUPID! He handed me paperwork that I thoroughly read and then was shocked when I called him. He questioned me and asked, "well, what's the problem?" The problem was over a 11% on a MORTGAGE LOAN!!! I don't know what he was thinking.... But I gave him the boot, with the quickness! Some people don;t read the fine print and then pay for it....for a very long time!
Posted by: supermom_in_ny | March 31, 2006 at 05:43 AM
An 11% mortgage?! You might as well buy a house with a credit card!
Posted by: EmilyPeters | March 31, 2006 at 08:26 AM