Wholesale Mortgage Refinance Rates – How The System is Open to Manipulation by Dishonest Brokers
Should the consumers not do their shopping carefully they would be leaving the price they get to chance. If they get the best price they are lucky, but it is unlikely that they will without checking a few shops. Mortgage refinance is no different. Homeowners need to spend a little bit of time to find the best rates. When you buy a product from a shop, you paid and done with it even it was expensive. When you signed for an expensive mortgage you will keep paying for years. If you want to get out of it with a better rate, you will need to pay for closing costs again.
Traditionally, people used to go to a broker and let him find the best mortgage refinance deal. Brokers are still a good source for mortgage shopping. A good broker will earn his fees several times by applying his knowledge and experience for the client. However, the system is open to manipulation by greedy brokers. Lenders pay them to charge extra rates to mortgage applicants. You would think that you pay the broker his origination fee and that is it. He is now working for you, as he is paid by you.
Unfortunately, that is not necessarily the case. Mortgage companies pay extra to the brokers who could charge higher rates to their clients. For every 0.25% mark up on the lowest rate an applicant qualifies, broker gets 1% additional fees. You may not know what it is even they are disclosed to you, because they are called Broker Rebate, Lender Paid Fees or Lender Paid Compensation. You would think that it has nothing to do with you as the lender paying the fees. Think again why lenders reward the broker. Have you not paid him a good 1% fee anyway, why should he be paid excessive fees again by the lenders?
The reason might be that he is marking up the wholesale mortgage refinance rate quote he has received from a lender. It does not seem a fair way of doing business. But if you swallow the higher mortgage rate, both your broker and lender make extra money on you. This premium is called Yield Spread Premium or Overage in the industry. However, you will come across to it as Lender Paid Fees or Lender Paid Compensation. Regulated brokers must disclose all the fees they receive. It is your right to question excessive fees if you come across in your mortgage quotes.
Most brokers are honest hard working people trying to make a living. Nevertheless, it is mortgage applicants’ duty to be aware of home loan interest rates in the market. They should read the documents and question anything unusual. These are all part of mortgage shopping. You need to get a few quotes from different sources. Now you can easily find an online quote platform and get up to 5 quotes almost instantly direct from lenders. If your mortgage broker comes up with a quote better than you can get online or direct, you know you are dealing with the right advisor.
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