Technically this is still a rumor in my book because I have not heard this directly from the bank in question…you can watch this video from Think Big Work Small where they state they have learned that Bank of America has all ready started doing this on the retail level and that Wells Fargo is rumored to follow.
The email that I saw today stated that BOA is only offering “par pricing”. This means that there is no rebate pricing. Many people have villainized rebate pricing (such as yield spread premium)…it’s become a real dirty word and that’s really too bad. Rebate pricing is how a mortgage originator is able to price a mortgage rate with “zero points” or “zero costs”. The mortgage originator is not paying for this stuff out of his or her pockets, they’re using the rebate pricing (ysp) paid by lender for offering a rate slightly above par. Typically pricing a mortgage with zero points means your rate is higher by about 0.25. It often makes more sense for the consumer to have a mortgage priced with zero points depending on what their financial plans are. Paying a point may take years to “break even” on that cost.
This appears to be a preemptive strike from the banks for what may be coming down the line with Congress proposing a bill which eliminates YSP… this is really ludicrious when the 2010 Good Faith Estimate gives the YSP as a credit to the borrower…so why take it away now?
It’s not that the loan originator is not getting paid, it’s that the borrower’s cost just went up for that mortgage if they’re working for. The borrower is losing more options for how their mortgage is structured, right down to the pricing. The borrower should have the choice of having their mortgage priced with or without points…and they currently still do just perhaps not with every lender.