Yield Spread – A Novel

yield spreadYield Spread is a novel written by Roger Rheinheimer, who in addition to being a full time lender in Port Angeles is the highly acclaimed author of Amish Snow, now in its Second Edition.

His new book, Yield Spread,  is about “a man you’ll love to hate, JP Mallot, and the forces that enabled and even condoned his behavior and its bitter consequences.

108 thoughts on “Yield Spread – A Novel

  1. Roger sent me an email asking me to write about his book too 🙂

    Yield Spread is now strictly fiction. It doesn’t exist anymore and even before the LO Comp changes that took place around April fools of this year, it was something that was credited to the borrower by originators where YSP was available (typically mortgage brokers).

  2. Rhonda,

    Does that include no compensation difference for Conventional vs FHA-VA. I heard something recently about LO’s making as much as 3%! on an FHA loan. That seems pretty absurd.

  3. There is no compensation difference with different programs at our company.

    LOs used to be able to charge based on estimated work required on a transaction… I would often charge less (lower percentage) on loans where the loan amounts were higher because I didn’t feel I needed to make X on a transaction if borrowers were responsive and the transaction was a “slam dunk” (great credit, income and large down payment).

    I never charged 3% on any loan and I’ve only been employed at Mortgage Master Service Corp for the past 11 years so I don’t know what other lenders may have allowed. I do know that in late 2009, I was “competing” against a local popular LO from a large bank who was quoting a higher rate than mine (by about a 0.25 which equals about a point to the loan officer or bank) and charged an addiitonal point as a discount on his GFE (I reviewed his GFE with the client) …I was stunned that his rates/price would be so high when so many RE agents refer to him. He would have been making some big bank on that loan. The home buyer did decide to work with me.

    If 3% is absurd for a LO to make – is it okay for a real estate agent to make that on a transaction?

    • My point as to “absurd” was that FHA is generally used for a less advantaged buyer-borrower, historically. A government program to sponsor home ownership. So for the charge to be 3X that of a conventional borrower seemed “absurd”. It was not a reference to what a loan officer should make.

      Usually a lender can do many more transactions at one time than an agent, and also cover a lot more ground geographically. Identifying the product as in which loan to use is usually not as difficult as identifying which house to purchase. Finding the right house can take months and sometimes a year. Deciding between a 30 year fixed or a 7 year arm rarely takes as long, or involves as many details as choosing which house.

      The ratio is often 4 to 1, a lender needing to do 3X to 4X the volume of an agent to arrive at the same income. The experiments of the agent not being part of the home selection process, i.e. a “contract to close” service more in line with a lender’s role, have pretty much failed. Also a lender makes money for the life of the loan in addition to the up front charges. The agent portion is a one time only fee.

      So no. I don’t think the LO compensation has ever matched the agent compensation for those reasons. I don’t think it’s a conflict for a lender to work with 20 people at the same time who want the same thing, whereas for an agent having even 2 of those at the same time is generally a conflict. I’ve been meaning to write a post on that. Can an agent have 5 clients all of whom want the same thing in the same place for the same price? My answer is no, but that is not a universal “rule”.

      • Ardell, have you originated a mortgage in the last 2 years? I think it’s amusing when agents think they know what it’s like to be an LO – I’d never presume to know your job without recently walking in your shoes.

        I’ve come out ahead with the LO comp situation as many LOs who never overcharged have… I have a transaction right now where I would gladly give up some of my compensation to help it close – I’m forbidden… my employer is going to… and it’s for reasons that have NOTHING to do with our performance…. sometimes you have loans like that.

        I like that my pay is divorced from the rate… I do miss having the option to “chip in” when needed.

        • Rhonda,

          I do need to “anticipate” the cost of buying and selling for a client. So if a lender can charge 3%…that is something I need to know…and by anyone’s expectation, that is excessive.

          Example: Client is wanting to sell their current home and buy a different home. I need to estimate the cost of “out and in”. Generally that is roughly 8% to 9% to get “out” and 3% or less to get “in” That includes ALL costs including the excise tax on the way “out”.

          IF the lender fee could be as high as the total estimate of ALL costs on the way “in”…I need to know that BEFORE they sell their home, and well before they find a house to buy.

          From an agent standpoint, the math starts when they are thinking about selling. So staying on top of any cost changes in the total picture of ANY related service or cost from Selling to Buying is something an agent needs to do, and an LO does not.

  4. It makes me giggle to hear people like Ardell call what we might be making per transaction as “absurd”.
    1. I do not nor does anybody in my office come close to that figure of 3%.
    2. Where does she get off telling us that it is absurd even if we did?
    3. She has no real grasp of our industry even after blogging it out for years.
    Let’s have our friends the GOV tell her how/much/when she can get paid and see if that would change her opinion. Her opinions are so typical of those elitists upper crust out in the world, which believe their jobs to be a part of the corn stone of the human condition and people that do what I do to be only ancillary or beneath them.

    This is only the truth as I see it, you will have to go elsewhere to hear what is not.

    • If you agree with me that lenders do not come close to a 3% figure…than why are you angry? It seems to be “true” that it is “absurd”, by your own admission. Why not agree if you agree it is WELL outside of “the norm”?

  5. Jerry, do I see composite shingle on the no to low pitch sections of that roof? This issue came up yesterday when I was looking at homes with a client. Hard to see in that picture, but generally, doesn’t a roof have to have a certain pitch to use a composite shingle?

  6. Typically, FHA deals require quite a bit more work and hand holding than a conventional transaction. Historically, FHA has paid the most of any loan product. The new comp rules merely prevent the LO from making more on FHA deals versus conventional, but don’t prevent the bank from making that money. Many FHA investors pay up to 5% SRP/YSP. Prior to the new comp rule, the LO would get a a portion of those funds. Now the bank keeps the bulk of it and pays out whatever the agreed upon comp plan is for the LO.

    Prior to the new comp rules, an LO had control over their compensation for better or worse. Now, we charge EVERYONE the same regardless of the loan product or the amount of work involved.

    LOs did not get the full percentage so 3% comp is really like 1.5% if you assume a 50% split with the mortgage company. Some LOs are higher splits and some are lower.

    • Thanks Russ! Makes perfect sense. But it seems that while the LO under the new rule is not influenced by compensation changes, they can still be under pressure to push certain products based on their employer making more money on certain products. Am I hearing that right?

      • I am sure there are some companies that pressure LOs to sell certain products. however, the reality is that at this point, LOs could careless what product a consumer wants because we get paid the same regardless. I guess this is a benefit as it does prevent weak LOs from steering. However, most of the LOs who would be influenced in that manner are probably out of the industry already.

        The new comp rules basically prevent LOs who are not in the business anymore from steering consumers who no longer qualify for mortgages to mortgage products that no longer exist! Steering was never a huge issue though for most borrowers. Very much over blown.

        Most LOs are getting some sort of BPS on volume now. Some may get year end bonuses as well. The better you are as an LO, the more BPS you can demand from your employer. I would say a strong producing, referral based LO probably gets 75 – 100 bps on volume net of splits these days.

        We no longer can chip in or pay closing costs out of our commissions. Gone are the free rate lock extensions. Tossing in a few bucks at the closing table. Our fee is set and that is the end of it.

        • Russ,

          I am used to Lenders “pushing” certain products by the rate spread, and deem that to be perfectly acceptable. If the Lender, as example, is thinking long term rates will be higher, they may offer a lower rate…larger spread…on the 5 to 7 year product. Nothing wrong with that. They are a business with both long and short term objectives.

          Example…if the current rate is 4.5% but the thinking is that rates will be 7% ten years out, the lender might offer a 1 point spread on the 7/1 product at 3.5% vs a 4.5% for a 30 year product.

          If the thinking is that long term rates will be the same or lower than the current 30 year rate…there may be little or no spread on the 7 year product.

          So I am used to differences and certain products being “pushed”…but in rate vs cost, where they can be more easily “seen” by the borrower and the borrower’s representative(s).

  7. All of these comments aside, I agree with the statement at the top – we will not know the consequences of these changes for quite some time.

    What interests me is – of all the changes our wise and wonderful legislators could make, why are they addressing LO compensation?

    Compensation of loan officers did cause this problem, because a loan officer could not steal that much money!

    Why not address the collusion between the rating agencies and the lenders? Or how about the hamstrung regulators? Or the inept oversight?

    To paraphrase Hillary Clinton – It Takes A Bank!!

    • Bob,

      The LO Compensation issue was not primarily about the mortgage crisis or fixing the mortgage crisis, as I recall. Nor was it about the amount of payment. It was about a study showing that the data as to how much consumers were charged (not LO’s paid) leaned toward being discriminatory.

      Protected classes ended up paying more as a result of there being too much “give” in what could be charged OR they were “steered” to higher cost loans more so than non-protected classes.

      There are many reasons for that result, none of which were the intention to discriminate. But to level the playing field and correct this discriminatory result, changes were made to prevent more profit for different loan types and less concessions from lenders to consumers direct.

      It was more about Fair Housing issues than “fixing” the credit industry woes financially. That’s my understanding of the reason for the change. Of course there is never ONLY one reason for anything. But that was the primary impetus for change.

        • I don’t read “the studies”. just the resultant news from them. Pretty sure this came up before in discussions with Jillayne. Maybe she has the “actual study”.

          “The Federal Reserve Board has concluded that African Americans were more likely to pay higher prices for mortgages than their Caucasian counterparts. The United States Inspector General cited the Federal Reserve Board report as showing “significant” differences, making it “clear” that African-Americans were “much more likely to get higher-priced loans” than Caucasians.”

          Not sure if that is from the most recent study, as I thought it involved all protected classes and not just one. Also the FRB was involved, but they were likely forming opinions based on “a study” but not the ones who actually did “the study”.

          Seems to me Barney Frank was involved as well. Jillayne may know the exact reference.

          The study was clear that the RESULT ended up as clearly discriminatory…even though there was likely no intention to discriminate. Likely the result manifested from fewer people in the protected classes fighting for lower cost or lower rates, and not the intended fault of the industry. I also remember the mention of “wrong” program as in the protected class individuals qualified for better programs than what they were “steered” toward.

          The best answer was to make things more uniform as there was no actionable offense or way to prove discrimination. So eliminating or reducing the potential for the discriminatory result was deemed the best course of action.

          And…I agree.

          • I don’t regularly read “The Constitution” either, but I do keep up on cases regarding issues that are “unconstitutional”. That the news story quotes that the result of a study was used by the Federal Reserve Board in making its decisions is enough evidence for me that the study exists.

            I don’t 2nd guess The Federal Reserve Board…but then I was “a banker” for 20 years before real estate for 21. The FRB is next to God. 🙂

          • Plus…it makes perfect sense that protected classes may be less able to “protect themselves” from being overcharged or steered. That is why they ARE “protected” classes. If it was counter to logical conclusion, I would challenge it. But it isn’t. It’s a very logical conclusion.

  8. Ardell,
    You have no real grasp on our industry and should not comment on it in the future.

    I can cite examples if you wish.

    I will start with one.

    The LO brings loans to the employer, the employer does not provide loans to the LO, unless you are sitting at a desk provided by BOA, Wells etc. so there is no need to do anything but provide the best product for the client.

    Companies like the one I originate at dont “push” any type of programs.

    This is not 2004 anymore.

  9. Chris,

    This is not about whether or not it is 2004 anymore. This is about the April 2011 changes in LO compensation. Clearly not NEARLY enough has been explained to the general public about that. So the general public is right to be asking questions about a recent change.

    To suggest that only those IN the Lending Industry have a right to “talk about it” is clearly “absurd”. It’s like saying it’s none of your G-D business”. Really?

    As someone who helps clients pick lender, and given this CHANGE is not even 90 days old…I don’t think the “put a lid on it” comment is valid. You don’t have to answer the questions…but to suggest they shouldn’t be asked is ridiculous.

  10. Chris,

    Your comment reminds me of the “bad loan officer” comment I sometimes get when I question things. “Your client isn’t complaining…so why are you?”. Hope you don’t fall into that category.

  11. I’m not complaining about clients asking questions, I’m directing my comments right at you and no one else, so save the “bad LO

    • Interesting…where did I “strike a nerve”? I don’t know anyone who thinks LO compensation is equal to agent compensation. Not sure if that is what struck your nerve and level of emotional response, but if it is…well, I don’t think anyone is under the general impression that LO and Agent compensation is on equal footing. Never has been.

  12. “I’m not complaining about clients asking questions, I’m directing my comments right at you…”

    First of all…this was a “fluff” piece about a Novel.

    Second of all…Questions from an agent of a client are to be deemed as questions from the client. There is no separation.

    If an Agent for the Buyer asks a question of the Lender…Isn’t that the same as “the client” asking the question? If the Representative of the Buyer asks the question…it IS “the buyer” asking the question.

    Here is “the question”, Chris.

    DOES the new legislation fulfill its intended consequence of “no steering” to different products due to differences in “lender compensation”…or is that ONLY as relates to the LO vs the “Lender”?

    Not sure why you have your panties in a twist, but as you yourself have stated, you obviously have some bone to pick with me even though I have no clue who you are. Have we tangled before and I don’t remember? Your level of emotion does not seem appropriate to a post about a Novel.

  13. To make it clear, IF it was disclosed that the lender was to receive 3% of the sale price as Lender Fee, then yes…I would have “a problem with that” in a given real estate transaction with one of my clients. If that’s a problem, Chris…well…then that’s a problem. But I don’t think we have done a transaction together. In my experience, 3% to the Lender is not the “norm”…or generally “acceptable”.

  14. You are missing the point.

    You seem to be very much into how we/I get paid and how much and we/I are not concerned with how realtors or you get paid because of the level of respect I/we have for anybody that works in the commissioned based world.
    Why are you so concerned or think we are over compensated?

    My responses are not emotional towards you just truthful.

    My comp is the same no matter what program the loan closes under that is the way things ave always been for me.

    • Chris,

      The agent is the representative of the Home Buyer or Home Seller in ALL THINGS related to the transaction.

      It IS “my business” to oversee the lender in a real estate transaction when I represent the Buyer of the home.

      It IS “my business” to oversee the Home Inspector in a real estate transaction when I represent the Buyer of the home.

      It IS “my business” to oversee the Title and Escrow services in a real estate transaction when I represent the buyer of the home.

      That you seem to think it is not…is what I call “bad lender”, as in “Hey…your buyer isn’t complaining about my ‘extra’ fees…so why are you even talking about it?” I have heard this MANY times…and my response is, YES…it IS “my business” as the professional who Represents the Buyer-Borrower”.

      NO TRANSACTION CLOSES without my scrutinizing the COSTS on the HUD 1 being charged to my client.

      It IS “my job” to KNOW YOUR JOB…it is not your job to know mine. Important for you to understand that distinction. If that makes you angry…well, not much I can do about that.

  15. “The option to ‘chip in’ when needed” is an interesting topic, whether that be the Lender or the Agent. I believe in the Lending Industry statistics revealed that the result…though not intention…ended up with people from “protected classes” receiving that benefit less so than other borrowers. Hence the need for the legislation. It could likewise apply to the agent industry. It is food for thought, and a reason to perhaps become more standard in the application of costs and “discounts” across the board.

  16. If it was your “job” to know my job then I would have to fire you as you still don’t seem to know “your” ‘my” job (I’m confused now) very well.

    If you want a better understanding of fees moving forward per transaction I can send you that info!!

    It’s been my experience that I would rather work with a master at his/her craft rather than a jack of all trades, as you claim to be; that’s why we all need to make sure that the ones we surround ourselves with are the best of the best.

  17. Author: ARDELL

    I am used to Lenders “pushing” certain products by the rate spread, and deem that to be perfectly acceptable. If the Lender, as example, is thinking long term rates will be higher, they may offer a lower rate…larger spread…on the 5 to 7 year product. Nothing wrong with that. They are a business with both long and short term objectives.

    Example…if the current rate is 4.5% but the thinking is that rates will be 7% ten years out, the lender might offer a 1 point spread on the 7/1 product at 3.5% vs a 4.5% for a 30 year product.

    If the thinking is that long term rates will be the same or lower than the current 30 year rate…there may be little or no spread on the 7 year product.

    So I am used to differences and certain products being “pushed”…but in rate vs cost, where they can be more easily “seen” by the borrower and the borrower’s representative(s).”


    If you are used to seeing lenders push rates, fees, and programs

    You need to work with better people.

    • Chris…the yield spread is a means to garner interest in a product via a lower rate, even a “below-market” rate. That is a staple of YOUR industry. Borrowers determine program based on the benefits to them of each.

      Sometimes the spread on a 5/1 is nil from a 7/1. Sometimes the spread can be as high as 1%. That is a legitimate pricing model, and one the borrower needs to consider. Take the word “push” out if you don’t like that word, but the concept is basic.

      Pulling from a couple of rate quotes from the past.

      30 year loan – rate 4%
      15 year loan – rate 3.5%
      5/1 loan – 2.25%
      7/1 loan – 3%

      At another point in time:

      30 year loan – 4%
      15 year loan – rate 3.5%
      5/1 loan 2.75%
      7/1. oan 3%

      The spread narrowed from a .75 spread on the five year vs the 7 year to a .25 spread. A .75 spread is a push toward the 5/1 product.

      Basic stuff…not a criticism. The spread is the “push” to that product. It could simply be because the lender has a gap in 5 year inventory that needs to be filled for better balance of the mix.

  18. Chris…it is my job to understand the changes in your industry. It is my job to understand your job TO THE EXTENT THAT IT IMPACTS MY CLIENT the buyer borrower.

    I have been in this industry for 21 years. I do not need a lesson in lender fees. What you put in your pocket vs what your employer puts in his pocket…I don’t need to go there with you.

    As to the best of the best…the best only get “angry” on behalf of a CLIENT…not self interest matters. My concern is only to the client’s best interest, not the lender’s best interest.

    Where does your anger come from with relation to the buyer of the home…the borrower of the funds? I’m seriously confused about that. If you are just having a bad day…well, let’s talk tomorrow. If there is something I specifically said in the comments here that ticks you off, pull it out and quote it and let’s get to the bottom of it. If you simply are equating “respect” with “mind your own damned business”…well…it is my business IF it impacts my client. If the rate and charges are in line from my client’s perspective, then I really don’t care how much you get to keep of that. I only care to the extent that it impacts my client.

  19. Also Ardell,
    As Russ has stated.

    He and I do not make one red cent more on a 3/1-5/1-7-1-30 year fixed etc.

    We give our clients access to the program that will best on what they are trying to accomplish.

    • “We give our clients access to the program that will best on what they are trying to accomplish.”

      Really? They don’t have “equal access” to info on all programs? WOW!

      How about “we give the borrower ALL the information…and to the borrower’s representative, so they can make an informed CHOICE”?

      “Access to ‘the’ program”? You may want to restate that. I don’t think that’s what you meant to say.

      • My comments are not directed at you and you only not agents as whole, lenders, escrow officers nor title reps, and I understand the relationship of the agent, buyer and lender.
        Don’t bring others in when I’m only speaking to you.
        I will say this to you for the last time, there is NO financial benefit to me “steering

        • You said “My comments are not directed at you…”

          Really? They seem to be. And yet, I don’t think I know you or vice versa. Apologies if I should. Have we met? Spoken? Had a a transaction where my client used you as the lender?

        • “Where to you come up with this 3% BS??? And also where did I right that if I got per transaction I would be okay with that. Please do not resort to lying in order to save/frame your argument.”

          You need to take a deep breath and count to 10.

          You said: “where did I right that if I got per transaction I would be okay with that.”

          I didn’t say that…in fact I said the OPPOSITE of that.

          Let’s quote it. I said: “If you agree with me that lenders do not come close to a 3% figure…than why are you angry? It seems to be “true

  20. Ardell,
    What are you talking about?

    You keep saying client, you are not.

    And I’m not angry; I’m trying to do just what you asked and inform you.

    You can call me anytime if you wish to discuss further and maybe the tone of my voice will convince you that I’m in a happy place right now.

    Here is my # 253-229-7216

    • Chris…and therein lies the rub. “You keep saying client, you are not.” Any “lender” who does not recognize that the agent is the representative of the buyer in all things and not merely a salesperson, does not understand the agent’s role in the real estate transaction. As such, I am now not surprised by your attitude.

      That said…there are times when a client does not require my assistance with regard to their mortgage matters, but that is between me and my client and not the lender’s prerogative.

  21. So…back to the TOPIC of this post…is this a Novel that lenders will not like? Is there something about “Yield Spread” being the name of the book that doesn’t sit well, even though the author of this Fictional piece IS a lender? I do think the main character is a lender “you’ll love to hate” per the author. My guess is it doesn’t paint a pretty picture of “Yield Spread” as it existed prior to the change in legislation.

  22. I loved scratch and sniff books, Chris 🙂 it’s been years since I’ve seen one.

    I’m kind of surprised, Ardell, that you wrote about this book – have you read it? I’ve had authors request my endorsement or review of their books before, which means they’ve mailed me the book to READ and review. I didn’t see a point in endorsing or writing anything about this book (Yield Spread) until (or unless) I read it.

    • Like you, I get lots of requests that I decline or ignore. I am more prone to say yes when the source of the product is a local source from the PNW. I wrote a post on a local band once, and they didn’t ask. 🙂

      Roger did not ask for an “endorsement” or a “book review”, he merely asked for a “mention”. I saw no reason to refuse a local author who wrote a Novel on a Real Estate Related topic.

      I’m quite surprised at the turn the comments took from the getgo over a Fictional Novel. I hope Roger gets as much interest in his book!

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