I'm currently studying to get my RE license in CA. This license is required to be an LO. I have some questions regarding how LOs are compensated.

* How many ways in a typical loan does the LO get a fee?
I know that there can be an Orig Fee/% and Yield Spread Premium.
* What else?
* Do you normally get both or just one? Are YSP's disclosed to the borrower?
* How does an avg mortgage agent compete with places like eloan offering these no cost loans? Is eloan using YSP to pay loan costs?

Thanks!

I owned a Mortgage Net Branch for the last few years. Here is the information you are looking for.


Origination and Discount Points are considered front end commission meaning that it is paid upfront. Discount points are often believed in the Real Estate community to be a way to buy down the interest rate. While this is somewhat true, it is actually paid to the loan officer who in turn is supposed to lower the rate thus taking a lower yield spread premium (YSP)

YSP is paid by the lending institution for a charging a higher interest rate. It is determined based on rate sheets. THe loan officer, or pricing manager, actually can pick which rate the borrower is quoted and then there is a rebate paid from the lender for the rate increase.


Most loan officers get both, at my company we generally only made money in the YSP.

As far as being disclosed it gets a little confusing. If the loan officer brokers the loan out, then the YSP is disclosed to the borrower in a dollar amount. If the loan is banked out, i.e. the loan officer works for a bank, or a correspondent lender, then the YSP is not disclosed to the borrower.

I know that is a little hard to understand. Let me try and sum it up, if the loan is brokered out it is disclosed, if it done using a banker license (directly through a bank, or a correspondent lender) it is not disclosed.



Yes, companies like eloan are using their YSP to pay for closing costs. It all depends on the situation, obviously its harder to pay $2500 in closing costs with a 100k home than it is to pay $4500 in closing costs on a 700k home. We looked at each loan on a case by case basis, some we payed all, some none, and some we payed some of the closing costs.

On average, I trained my LOs to make between 3000 and 4000 in commission off each loan. It is very easy to make 20k plus on a 700k home, but I don't want to be defending myself in court against predatory lending if that comes up.


Hope this post helps!

Is there such a thing as a loan w/o YSP included or do all loans have some amount of YSP? If you don't have your fee would all be Orig or Discount points/fee, correct?

Correct on the fees, pricing sheets all vary by lender most of them make a correlation to YSP and Rate with the number 100.000 meaning there is no YSP... If the number is below 100 that means that the broker actually has to pay money to get that rate, however you will always deal with YSP in the where you get cash. An example of that would be 101.500. In that example the YSP would be 1.5%. Another way that some lenders show this example would be like this (1.500). So here is an example of a rate sheet:

6.125 99.875
6.250 100.015
6.375 101.356
6.500 102.540
6.625 103.905
6.750 104.569

In this example if you quoted the person a rate of 6.625% you would be making a YSP of 3.905%. These rates change daily. This also shows how someone actually doesn't qualify for ONE rate, the rate the LO supplies includes the YSP commission he plans on making. So two agents lending on the same program might quote two different rates.

Hope this helps, let me know if you have any more questions!

Also when you get done with your exams, let me know if I can tell you a little bit about EXIT Realty and why you should interview with them! Good Luck

Lenders get paid several ways

1. Upfront mortgage broker/origination fee
2. Upfront "Junk" fees (application, credit report etc)
3. Yield Spread Premium - The higher the rate the more earned
4. Service release premium - (Only earned by "lenders" when they sell the loan to the end investor)

We decided to go with a pricing model that is fair for all borrowers.

We charge a Flat broker/origination fee of $1,595 and earn a small YSP of .25% ($250 per 100K loan)

This allows us to earn a fair fee while giving the customer a rate as close to the lenders "par" rate as possible

Thanks
Danny

Thanks for the great information!

OneFee:
What are the real "costs" with brokering a loan?
Are there fees paid by you to cover application, credit report, etc?
Are you covering your "costs" from the flat rate and small YSP?
What is line 814 - Processing Fee?


Can APR really tell you as a consumer which loan is "cheaper"? If you have 2 seemingly identical apple-to-apple loans and one has a lower APR do you take the lower APR?

My company charges a processing fee and that fee goes to pay or contracted processor. She is responsible for submitting the file to the lenders underwriter and help work on the "conditions" we receive from the lender to get the loan to close.
#2 if APR is figured correctly then yes it is one of the best ways to choose between two loan programs or two lenders. I like to look at the "over-all cost of the loan"

Do most mortgage brokers have a processor?

What is the best way to determine overall cost of a loan? Does the GFE tell me all the numbers I need to know to calculate the true cost? I realize the GFE may contain some estimates but most are pretty close, right?

Some places have loan officers process their own loans, but those are few and far between. Most offices have processors in house, while some contract out if they don't have the demand for a full-time one.

As far as the GFE goes, ethically it should be within $100 of the total costs. There should be no other costs associated with the loan other than the ones listed on the GFE.

One quick question about APR, are prepaid finance charges different from state to state? I don't imagine they would, but figured I would ask.

Seems like LO's make more money that REALTORs.

I dont know too much about mortgages, but the GFE's I have seen, seem to have a bunch of BS charges...$600 application fees, $500 processing fees, $500, for some other crap fee, and more and more.

they SHOULD be close.
mistakes are made.... but if there is a material change, the borrower should be re-disclosed

below is an article from my website that explains the average fees collected with sources.

The costs the typical loan officer will have to pay out of pocket regardless if a loan closes or not is

Credit reports $10 - $15
Overnight Fees $25 - $40
Verification of Deposits, Verification of Employment etc $25 each
Fannie Mae automated underwriting $15- $20
Processors typically only get paid if loan closes unless they are in-house and salaried.
The typical processing fee paid to a third party processor is $450 - $600

The GFE and the APR are excellent tools for comparing loans, the problem comes in the manipulation of the numbers. For example EVERY APR you see advertised is based on an 80% LTV. The reason is that if it is based on a loan with mortgage insurance the APR raises dramatically. If I give a quote at a rate of 5.5% with an APR of 8% compared to BofA sign that shows a rate of 6% and APR of 6.2% they look better even though they will ultimately have to apply the same APR data.

The APR in a quote can be also be manipulated by not including the correct fees or by decreasing the "lender" fees and increasing the title fees. This results in the same bottom line closing costs so the customer is less likely to complain but the APR quoted is much lower and it looks better. The customer won't know the real APR until they are sitting at the closing table.

There are shops that do nothing but collect application fees, knowing full well that the loan won't close. I worked for 2 days with a company that made a deal with an appraiser to charge $200 for loans that disn't close and $600 for loans that did. this meant that the people who closed loans helped offset the cost of the people who couldn't qualify



Our OneFee Plus program allows us to quote the very lowest cost loans in the country. We also have the ability to use the lenders yield spread premium to pay for some of your closing costs.

In order to truly understand the affects of our OneFee Plus program I feel it is important to know a few items.

Lenders charge an average of $1,038 in points and $839 in Broker fees on a $180,000 loan (a little above 1% of the loan amount) source:http://www.bankrate.com/brm/news/mortgages/20031106b1.asp
Lenders charge an average of $570 in junk fees (Application $205, Admin fee $336, $29 credit report) source:http://www.bankrate.com/brm/news/mortgages/20031106b1.asp
Lenders earn an average of $1,850 in Yield Spread Premiums (fees earned direct from lenders as a reward for increasing your rate. to earn this 1% Yield Spread Premium the rate is increased by an average of .5%) On a $180,000 loan this means a payment increase of $60 per month and total additional interest over a 30 year period of over $22,000. source:http://www.responsiblelending.org/abuses/signs/ysp.cfm
As the numbers above show the average earnings on a $180,000 loan for a loan officer is $4,297. The higher the loan amount the higher the fees because most lenders charge you based on a percentage of your loan.

I feel that there should be a fair charge for the work that a mortgage loan originator does but the use of the yield spread premium (a fee that was initially created to help customers offset upfront fees and make getting into a home more affordable) should not be charged in conjunction with the upfront fees just to pad the pockets of unethical and greedy loan officers.

The greed gets even worse as the loan amounts increase, Do you think a $500,000 loan is harder work than a $180,000 loan? Of course not, but why do mortgage loan originators feel like they should get a percentage of the loan. Instead of $4,297 in fees they will now earn $10,570 in fees. An extra $6,273 in fees just to change some digits in a computer.

These greedy and unethical mortgage loan originators are stealing the American Dream one point at a time.

If you think dealing direct with lenders will be better you are wrong, lenders have the same upfront fees, junk fees, and yield spread premium incentives but they are legally allowed to hide them source: http://www.alta.org/advocacy/news.cfm?newsID=495

Our OneFee Plus program allows us to earn a reasonable $1,595 per loan plus a maximum yield spread premium of .25% that's it!

Mortgage loan shopping is a very difficult thing to do and it is nearly impossible to compare one offer with the other but one thing is for certain, we all have access to the same loans and if my earnings on each loan are less than 50% of the competitors earnings there must be a reason.

help me change the industry, say no to high yield spread premiums

From what you are saying about the APR it is nearly worthless to use as a comparison if it can be fudged. How would a consumer truly be able to compare if they don't know what numbers were used to derive the APR? Would the best bet then to research several lenders and directly compare GFEs with all the fees listed. From what others have said the GFE should very closely match true closing costs, right?

Look for how large of a gap there is btwn interest rate & APR that tells you if there are hidden fees.

GFE should be w/in 10%.

There are potential rebates back to the originator after the loan is sold on the secondary market, not something that can be quantified ahead of time b/c nobody knows what a given portfolio will sell for later.

The loans get bundled up & auctioned off after they're closed.

Yes there are a lot of sleazebags in this industry.

And there are sleazierbags cropping up trying to confuse consumers even further.


There are 3d party fees that must be paid irrespective of the type of loan, ie appraisal, processor, title, escrow, credit report, (btw we can only legally charge our actual cost for the credit report, I pay $15 for a trimerge) etc.

Originators can charge an origination fee, it's how LOS get paid.

I sell my loans at par meaning the lowest interest rate available for the client. I have lost $ doing it but right is right & I believe what comes around goes around.

As for all those no cost loans on TV the big lenders can absorb a lot of costs just to make a loan b/c they make it back on volume. Most LOS can't feed their families making $150 per closed deal. But not to worry a lot of those loans will get the consumer on the back end.

Interest rate vs APR spread is a good indicator, IMO.

Thanks Diva! I've come to understand the 3rd party fees now along with orig fee and YSP.

You say you sell at par. Is your only take home from orig fee? I've been curious about orig fee vs. YSP. Many people seem to want to not pay closing costs, especially those associated with loans (orig fee, appraisal, credit rpt, processor, etc). If you educated a consumer do you think most would opt for using YSP to cover closing costs and your fee to minimize their down payment? Or do you find that most would rather a lower rate and pay out-of-pocket up front?

Thanks again!

Bump, I'm still interested in the PAR vs low/no closing cost angle with consumers. Seems a lot of people concentrate on low fees which makes me think you would need YSP to get paid? Any further information would be appreciated. Thanks!