Major Bank No Longer Allowing Mortgages with Zero Points/Zero Costs

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.

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About Rhonda Porter

Rhonda Porter is an NMLS Licensed Mortgage Originator MLO121324 for homes located in Washington state. Her blog, The Mortgage Porter, is nationally recognized for sharing relevant information to consumers about mortgages. She has been originating mortgages since 2000 at Mortgage Master Service Corporation #40445 Consumer NMLS Website: NMLS ID 40445. Equal Housing Opportunity. You can follow Rhonda on @mortgageporter, Facebook and/or Google+

25 thoughts on “Major Bank No Longer Allowing Mortgages with Zero Points/Zero Costs

    • I’m hearing from a few LO’s state that they’re paid on volume vs the loan amount–how does paying by volume benefit the consumer when it encourages LO’s to do more loans vs quality loans?

      I’ve always felt that LO’s should be paid hourly (like an atty) vs origination fee.

    • Rhonda-

      We can price above par rate, but any overage goes back to the buyer in the form of a closing cost credit…dollar for dollar.

  1. There is a BofA Loan Officer in my town promoting that he never charges an origination fee, no points, and does not receive any YSP/SRP. I imagine the bank just offers a higher ‘par’ rate then what the actual ‘par’ rate is. Then they just pay there LO’s a per loan fee based on an average loan amount? Or have tiered ‘bonuses’ based on loan amount? Or, maybe they are literally paid an hourly fee and will be required to produce X number of loans. Whatever it is, you know the par rate will be higher than the actual par rate.

    • I’m hearing from LO’s via Twitter “my pay is from bps from my volume tier on the loan amount, not the origination fee which is never charge””

      Another LO said “The bank pays us BPS based on loan volume closed… that would be a percentage of the volume closed for that said month”

      This is odd to me because when I was on BOA’s website last night, they were definately quoting points.

      The LO’s seem to feel that being rewarded by volume (numbers of loans you can close in a month) is better than be paid loan by loan. I don’t agree…and I know both sides can be argued. I’ve always felt that LO’s should be paid by the hour. Easier loans we earn less on and tougher ones we earn more…what’s wrong with that?

  2. Rhonda:

    This is just a continuation of the trend of banks putting the squeeze on borrowers to increase their profits. Sure, they’ll position it as “corralling rogue LO’s” or something like that, but the reality is that they are harming borrowers.

    As you pointed out, the YSP gets credited to the borrower, NOT the broker.

    Let’s hope that there are few followers of this trend. And hope against hope that the government can see this for what it truly is, rather than piling on an already suffering population of borrowers.

  3. I think what is going on is that BofA is eliminating “overage”. Basically, at retail banks overage is essentially where the retail LO gets the borrower to take a higher rate and they LO gets a cut of it. It is essentially the same thing as YSP, SRP, etc.

    The politicos and consumer groups don’t want rates to be influenced by LO compensation. This is one way they can get out front of the Fed and say they aren’t compensating LOs for giving higher rates. We all know it is a lie and misleading, but sound bites rule the day with these mental midgets.

    It will be interesting to see how the compensation models are going to change, especially at the wholesale level.

    • Just when we thought being a mortgage professional was interesting enough! LOL Pretty soon, with all the changes (including Red Flags later this year)… you won’t be able to pay people enough to be a mortgage originator. It just took me an hour and a half to do a 2010 good faith estimate.

  4. Getting paid hourly would be an interesting concept. However, I don’t think it would work. The reality is that most consumers don’t have enough cash to pay what it actually cost to profitably originate a loan. I don’t even know that hourly would work relative to the hell we go through even if at the end of the day, we may only spend a solid two or three hours on an individual file. That two hours might feel like 40 given the stress levels associated.

    Big banks usually have different channels of origination and they all don’t charge the same. The websites usually funnel calls to the “phone officers” and call center monkeys. Ironically, these rates tend to be the highest. However, there are also LOs who work like any other broker out of a mortgage only branch and they cultivate relationships with Realtors and borrowers. You also get LOs who just sit in regular bank branches too.

  5. What’s odd to me is that when I go to the BOA retail website and say I want a $400k mortgage (pretty much how I base my rate quotes here and at MP) it’s pricing the rate w/1 point plus closing costs and fees at 4.875% (about an 0.125 higher in than what I posted yesterday)…the closing costs are higher than what I would quote too. Yet the LO’s all chime that they do not receive any origination or rebate for their compensation. So is the bank earning the point and what ever is on the back/rebate? If so, how is this better for the consumer?

    • It isn’t better for the consumers. 9 out of 10 times the websites are going to have higher rates than what a consumer could get if they dealt with an old school relationship LO. However, banks know that consumers think everything online is cheaper when in fact it is not. The LOs they are using aren’t paid that much relatively speaking and the bank keeps the excess profits. Consumers couldn’t be happier. Ignorance is bliss.

      I have been wondering what the impact would be if LO compensation was completely decoupled from the mortgage altogether and banks could only offer par rates or rates requiring discount points. Any compensation the LO requires would have to be paid by the consumer directly. This would also work with Realtors. If Realtors weren’t paid by the seller, I wonder how much they would really be worth on the open market.

  6. It goes to thoughts that I had last year when speaking of LO compensation. it would stratify the LOs out there. ones who work for the big boxes (BoFa, etc) who get paid a flat fee per file and clients get to order off a limited “menu” of items. Kind of like going to the DMV for a loan, take a number and eventually it will get done. The better LOs set and hourly rate and charge just like attorneys would. maybe not such a bad idea…..

  7. Whenever discussing compensation, you have to account for the “no compensation factor”.

    Here’s an article from today’s Seattle Times showing what we already know, that more purchase transactions failed in 2009 than ever before.

    Every one of those failures had multiple hours of work, multiplied by a number of people in the business: REs, LOs, title, escrow, and banks, most of whom did not get any compensation for their labor, expertise and risk.

    Wasted labor is not good for any economy.

  8. My premise about real estate transactions in general, is we are going back to (or closer to) the “old days”.

    Direct lenders were “cheaper” by the 1% origination, which was charged only by loan brokers.

    Loan Brokers charged a 1% broker/origination fee

    Those that wanted and/or needed a loan “broker” paid 1% more for the privilege.

    One thing we likely will not see that was true in the “old days” was that most every rate was quoted as a 3 point loan, and most buyers of conventional loans paid 3 points (and stayed in their homes longer).

    Then we saw 1 point loans, that was a 1/1. One point discount and 1 point origination.

    Then we went to 0/1 No discount and 1 point origination.

    Then we went to 0/0 No discount No origination.

    “Par” Product only referred to no discount…not no origination OR discount.

    Technically to include the zero origination, you have to price the loan OVER “par” not AT “par”.

    The same as a “par” bond. “par” does not include the cost of buying that bond through a broker to get to no premium or discount. Par is the market rate without regard to cost of transaction.

    From a buyer’s point of view, same rate direct lender vs loan broker SHOULD be less cost. As I reported earlier, at least one major lister of bank owned properties is requiring that the pre-approval be from a DIRECT lender, and finance contingency is requiring application with “lender” within 5 days of contract be the ACTUAL lender who will FUND the loan.

    Getting rid of broker middlemen altogether may be the market’s answer to: “…more purchase transactions failed in 2009 than ever before”. Aside from the cost factor, what’s really happening is that there is little confidence these days in the loan broker vs. direct lender structure.

    That said…the ONLY transacton I had in 2009 that didn’t fund (initially) WAS a bank-direct lender. We shifted to loan broker, and it did close. So Direct Lenders may not be the be-all-end-all as to fewer transactions failing to close, that “the market” thinks it is.

  9. Where the 2010 estimte is a benefit is that it will show costs to rate better (assuming it’s filled out correctly).

    Presently one type of institution over the other doesn’t seem to offer better pricing. It boils down to the originators who have had the flexibity of deciding what they want to charge for their service and the loan product, very similar to how real estate agents are paid.

    Consumers, in years past and I hope the future, have had the freedom to let their mortgage professional know how they want their mortgage priced:
    ~no points (no origination fee/no discount points)
    ~a rate based on paying 1 point or addtional discount points
    ~a rate based on only paying a specific amount of lender costs.

    I’ve been asked many different scenarios over the past 10 years. I’ve had to freedom to say, yes I can lock that rate at that cost or nope…I can’t (rate not available to not enough revenue for me to justify doing the loan)…or even better, yes I can lock that and better the rate or lower the costs.

    I see all of this being in significant jeopardy with how our Congress is on a rampage.

    Mortgage Brokers did not cause our current crisis. They’re a weak lobbying group formed of small businesses that are in jeopardy as well. Mortgage banks sold the products to the brokers, created the guidelines, underwrote the transactions and then bought them from broker. The Broker was only a sales person.

    So now Congress is after eliminating YSP EVEN THOUGH IT’S CREDITED TO THE BORROWER with the implementation of the 2010 GFE. They’re wasting tax payer dollars on a moot point…BIG SURPRISE!

    They know nothing about the mortgage industry and are also to blame for our crisis with how much they pushed banks to offer housing for more people who could not afford or qualify based on programs that were available at that time.

    I shudder to think what it’s going to be like for the consumer if all that is left for them are three or four big ol’ TARP banks for mortgages… I can tell that rates will not be competitive AND that service will not be great. Once banks have suffocated mortgage brokers, there will be little to no competition…and that’s always bad for the consumer.

  10. I don’t know where to ask this, but you are the person to ask. What about rebates?

    BoA was heading down a one stop shopping path a while back; title, and escrow from preferred vendors. I was going to throw the appraiser in there, but that is a very muddy issue for me.

    I’m more interested in agent contribution of commission, or work orders paid at closing. It seem with all the talk about points and fees there may be some nuts and bolts of closing a transaction left on the garage floor.

    • David, re: I’m more interested in agent contribution of commission, or work orders paid at closing, do you mean where this would show on a good faith estimate or HUD? I’m not sure what you’re asking.

  11. Hey Rhonda, “Mortgage Brokers did not cause our current crisis. They’re a weak lobbying group formed of small businesses that are in jeopardy as well. Mortgage banks sold the products to the brokers, created the guidelines, underwrote the transactions and then bought them from broker. The Broker was only a sales person.”

    Well, what about the hundreds of mortgage fraud cases posted on the FBI website involving mortgage broker LOs. What about the countless stories of broker LOs bragging about how they are making thousands off of consumers, driving Hummers, talking about how they knew nothing about lending and then were making six figures. Yes, I’m sure its’ the bank’s fault that those LOs committed fraud and screwed consumers. 100% the bank’s fault. Uh huh. Right.

    This meltdown exposed a wide, systemic problem. The brokers are in no way innocent.

    At the height of the bubble, NAMB (Nat’l Assoc of Mtg Brokers) was proudly bragging that over 51% of loans originated were done by a broker.

    Broker LOs like to say “well what about the consumer and their responsibility for understanding what they’re signing.”

    So the argument is that broker’s aren’t accountable for what happened because the banks created the product and as salespeople, they had no accountability to their customers.

    If that’s the argument, you’re arguing that brokers are worthless salespeople, used by the banks (victims!) with no duty to the consumer.

    I do not take that position AT ALL.

    I believe many brokers took advantage of consumers and were encouraged to do so by the corporate culture they found themselves recruited into at their broker shop.

    I have met MANY brokers who couldn’t live with themselves inside corporate cultures described above and left that company, and sought out a different work environment that cares for the client, even it it means making less money than the Hummer driving LOs.

    Further, MANY MANY LOs who took advantage of consumers WORKED FOR CONSUMER LOAN COMPANIES who like to call themselves “mortgage bankers” or “correspondent lenders.”

    It’s not just the mortgage brokers who had a problem with corporate culture and rewarding LOs that piled on the fees and YSPs.

    This mess is a systemic wide problem.

    Brokers as well as consumer loan company LOs PLAYED A BIG PART.

    Let’s not pretend they’re innocent and point the finger at ONLY the banks.

    I definitely believe YSP and any LO compensation based on a higher rate will eventually go away. Why? Because it was misused for too many years not to “give the consumer a choice” but to line the pockets of LOs and their bosses. Not by all LOs but by the majority of LOs.

    You all who use YSP to “offer the consumer a choice” and who honestly explain what YSP is and what your compensation is are IN THE MINORITY of LOs.

    The wide majority of LOs did not do this.

    Over the past 5 years I have met thousand and thousands of LOs (broker and consumer loan LOs)
    I can attest right now that the vast majority of LOs used YSP as an additional form of compensation and rarely honestly explained what it was to the consumer.

    YSP is going away. Compensation will revert back to what it was in the 1980s. 2% LO fee and 3% if it’s a broker.

    Broker is going to have to justify his/her value to the consumer. If there is no value, broker numbers will shrink even more.

  12. Whoa!!!!

    Well, yes I meant where would rebates go on the HUD as opposed to the GFE. Is there a procedure for that, or rebating commissions, but am more impressed with Jillayne’s comment.

    You are absolutely correct that Loan Officers, bankers, brokers, and sales people were all recruited do sell product. Boiler rooms are still winding down today and it’s a shameful that Obama is still giving these thugs credibility.

  13. YSP/Rebate will go where it went before we had the new GFE: Same place: They go in the 800 series.

    Not 801, not 802, prob not 803. Somewhere below line 808. 808-813. At least that’s where YSP is supposed to go.

    • I’m pretty sure that ysp goes on 802 on page 3 of the new hud…

      For a mortgage broker originating a loan in its own name, the amount
      shown on Line 802 will be the difference between the initial loan amount
      and the total payment to the mortgage broker from the lender. The total
      payment to the mortgage broker will be the sum of the price paid for the
      loan by the lender and any other payments to the mortgage broker from
      the lender, including any payments based on the loan amount or loan
      terms, and any flat rate payments. For a mortgage broker originating a
      loan in another entity’s name, the amount shown on Line 802 will be the
      sum of all payments to the mortgage broker from the lender, including
      any payments based on the loan amount or loan terms, and any flat rate
      In either case, when the amount paid to the mortgage broker exceeds
      the initial loan amount, there is a credit to the borrower and it is
      entered as a negative amount. When the initial loan amount exceeds the
      amount paid to the mortgage broker, there is a charge to the borrower
      and it is entered as a positive amount. For a lender, the amount shown
      on Line 802 may include any credit or charge (points) to the Borrower.

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