Let Brokers charge what they want. Do away with YSP.

Couldn’t the whole yield spread premium (YSP) debate with all the trimmings end with a simple solution such as allowing the broker to charge whatever they want? Let the free market sort it out. Certainly lenders would have to be on board and do away with incentives or change them somehow, but it seems to me that everyone is making it so complicated.

Yes, compliance issues, licensing and fair dealing issues are important and should be implemented in some manner.


  • Just disclose up front what the compensation is based on the interest rate or program the borrower qualifies for. Therefore…….
    • No more the need to attend sales seminars on learning how to overcome objections, which will allow more time to attend seminars on how to provide sterling service.
    • No more awkward moments for the loan officer attending an escrow singing when the borrower questions that “YSP thingy.”
    • No more loan officers asking escrow “how will you explain YSP” to the borrower, as if escrow’s response somehow dictates whether or not they will receive future business.
    • No more agents having to watch helplessly at their clients becoming frustrated or stressed out due to lending problems associated with YSP’s and the completely preventable situation where a transaction spirals out of control at the last moment.
  • How about lenders just have a simplified schedule of programs and rates that the borrower can choose from and if they pay a higher interest rate they receive a rebate that can be used on their behalf. How about just turning the PC monitor around and showing the consumer the several programs available and then have a good old fashioned counseling session. It would save every single moving part in a transaction a lot of grief. And it would save transactions from failing at the last moment because a “nuclear bomb disclosure” by a lender about the yield spread premium a loan officer is earning that freaks out the borrower.

I can just about darn near guarantee that if a consumer knows where all the chips are on the table, they would have no problem moving forward with a transaction. Give a consumer the very best rate they can qualify for, at the very lowest fee structure you can, with all the chips clearly on the table and Bam! you have a happy client, fostering long-term value.

When will someone just give the consumer what they want? Somebody is working on it and they are going to will be very successful. Is it really more complicated? If so, sound off.

108 thoughts on “Let Brokers charge what they want. Do away with YSP.

  1. I am not opposed to disclosure and I am all for educating consumers.

    I certainly can appreciate your position Tim here you are trying to do your job and you are tossed in the middle of an awkward spot.

    For me Todd’s point is, does everyone have to disclose their cost? What do all the parts in a car cost? Is an auto manufacture allowed to buy parts and mark them up?

    For me the question is, does a lender have the right to essentially buy money at one price and then sell it for more?

    I think the time to negotiate the interest rate is not at the closing table.

    For me personally I don’t focus on what someone else is making in a transaction. I focus more is this good for me at the time? I think you can always get a better deal.

    If a consumer is not willing to do any investigation, does that mean profits should be regulated? Regulating an industry instead of consumers spending a few hours to understand some basics is not the right direction IMO. A smarter consumer is a better solution.

    I personally disclose all my fees up front (as a real estate agent) and I give the consumer the option at the very beginning to not work with me if they choose. I am very clear in order to move forward we have to mutually agree to work with each other.

    I have to go back to, does a lender have the right to buy wholesale and sell retail?

  2. I think Todd’s point is that consumers may make the wrong decision by focusing on YSP instead of the rate and cost as disclosed on the YSP. What if…

    Lender A has a rate of 6.00% at 1 point, $1000 in closing costs (section 800) and they’re receiving a half point in YSP.

    Lender B has a rate of 6.00% at 1 point, $1000 in closing costs and they’re receiving 0.75% in YSP.

    Lender C has a rate of 5.875% at 1 point, $1000 in closing costs and they’re receiving 1.5% in YSP.

    Would you not work with Lender C becaue they’re getting 1% or more in YSP even though they’re quoting a lower rate?

  3. Hi Rhonda,
    Definitely a better explaination, similar camera angle as mine. I focus on what I am getting not what the other is getting, is what I a getting good for me.


  4. Tragically, you all may be missing the reality.

    There are two types of mortgage sources:

    1). Mortgage brokers – These are the guys with the most to loose with disclosure of YSP, as they are using other peoples money and the cost of that money is known (and disclosed as YSP). They are not lending their own money. These people are the target of current legislation.

    2). Mortgage bankers – ie. WAMU, CITI, etc. These are entities who stand the most to gain from YSP disclosure, as they are using their own funds to create mortgages. Their own funds have no known cost, therefore there is no YSP disclosure requirement. These people ARE NOT the target of current legislation (and, as a beneficiary of YSP disclosure, are they the ones pushing the legislation?).

    What it all means is this… YSP disclosure creates an uneven playing field and disclosure (which I personally have no problem with), or the lack of consumer understanding about the two sources of funds, swings in favor of bankers who can show a “0” YSP.

    Money is money, there is a cost… do I, a broker or banker, need to disclose? OK, I a banker have no YSP! Buy mine, buy mine! The other guy (broker) is cheating YOU!

    Here is what will happen with YSP disclosure requirement. Brokers will obtain their own bank lines, which will allow them to become mortgage bankers and they will lend, just like a banker. Their cost of funds (YSP) will simply disappear and will not be required to disclosed. Did the consumer win?

    New mortgage bankers will now be able to recruit based upon the fact that they don’t have to disclose YSP and you will get rid of some perfectly decent mortgage brokers, who can’t keep their decent loan officers any more. The face of the industry would change, would the consumer be better off?

    The whole YSP issue might be a red herring (and not the first time to be proposed in the last 5 years) where efforts are being made to divert attention to thievery on Wall Street. I know, let’s blame the little, nameless, disgusting guy!

  5. “Here is what will happen with YSP disclosure requirement. Brokers will obtain their own bank lines, which will allow them to become mortgage bankers and they will lend, just like a banker. Their cost of funds (YSP) will simply disappear and will not be required to disclosed. Did the consumer win?”

    Very few brokers can afford to do that, that’s why they’re brokers.

    It’s stupid all across the board.

  6. The problem doesn’t seem to be with the disclosure or non-disclosure of the YSP, the problem is the inherent conflict of interest the YSP spread (over types of loans / rates) creates for the broker.

    For example, lets consider 2 different Lenders (A and B) each with 3 equivalent loan products (in terms of rates, points and consumer costs). The only difference between Lender A and B is the YSP on each of the loan products.

    For Lender A, each loan product has a YSP of 1.0%.

    For Lender B, product 1 has a YSP of 1.0%, product 2 has a YSP of 1.5% and product 3 has a YSP of 2.0%.

    Each lender meets with a basket of consumers. For Lender A, it does not matter which loan product the consumer chooses, as he stands to make the same amount of money each loan. On the other hand, it behooves Lender B to steer consumers towards products 2 and 3, since he stands to make more money on these types of loans. If loan products 2 and 3 are not in the best interest of the consumer, then there is an inherent conflict of interest.

    This is the big (potential) problem.

    Disclosure of YSPs make no difference to consumers on equivalent loan products. It does make a difference when that consumer is able to choose from one of several loan products, the sales of which may be influenced by the YSP.

  7. Rhonda basically is reading my mind. YSP is a number that confuses consumers. What is my rate, and how much will it cost me are the only two things a borrower should worry about.

    Ubersalad – Does it matter that Toyota earns more profit than GM? Is this how you would base your purchasing decision? Let’s see, Toyota is making more money off of me, so for that reason alone, I’ll buy a Chevy. It doesn’t matter if the Toyota will suite my needs better and cost me less, I can’t have them get over on me like that.

    BTW, it’s quite easy to operate as a banker. Now that everyone will be doing it, it doesn’t matter how much it will cost additionally. The market will simply pass on that cost to the consumer. Ah, the wonders of unintended consequences.

  8. Hey Todd,
    Find a new job. You are a normal real estate agent that understands nothing about financing. If this passes, you will be out of a job. No money, no deals, this kills the folks that get you paid.
    Wake up Todd, time is not on your side.

  9. The question isn’t whether a broker can become a banker, there are reasons for being either. Brokers who currently charge more may be more able to become mortgage bankers and now you have simply made them harder to see by forcing them to become bankers.

    Pass the legislation, please. A year from now there will be a significant change in the industry and the issue of YSP will have been bypassed, to back to business as usual. People getting paid whatever they can justify, hidden or disclosed.

    I wonder if there is a better solution? Possibly more education of the consumer which focuses on APR as a better tool for determining consumer benefit. Theoretically APR takes into consideration Interest rates and costs (like YSP) and gives a succinct answer.

  10. Hmmm… Rob demonstrates a lack of understanding of the issue.

    I owned a mortgage company which generated 4,500 mortgages and $850,000,000 in volume before I sold it.

    I actually do understand from whence I speak. I started as a broker and built a mortgage bank with a $10mm line of credit.

    This whole thing revolves around packaging how the loan officer gets paid. It will have no effect on the real estate business, only how the LO explains their compensation.

    Methinks that Rob is a loan officer who will be detrimentally impacted by disclosure. Good thing is that he can get a job with a mortgage banker and not have to worry about said YSP disclosure.

  11. If a consumer is focused just on YSP; they will most likely select the wrong lender.

    Morgage bankers and correspondent lenders do not disclose what is paid on the back end. We don’t have YSP. We can price a mortgage many ways and may receive compensation on “the back end”. However, the consumer will never see it.

    I may make more on a transaction than the guy down the street…if my client is getting the better rate at lower or same costs; what’s wrong with that?

    How this scenario, all three banks have 6.00% and the borrower will be one point for that rate. The Loan Originator who works for a can chose from the three banks:

    Bank A has 6% at par (no rebate)
    Bank B has 6% with 0.25% rebate
    Bank C has 6% with 0.375% rebate

    Whether the LO choses Bank A, B or C, shouldn’t it be there right regardless of whether or not the rebate (or YSP) is disclosed as long as the consumer is receiving a fair, competitive rate?

    Again, I have no issue with disclosing what I’m paid. I’m not paid YSP unless I’m brokering a loan.

  12. Lucas (#9) hit the nail right on the head. The problem is that the current compensation model encourages brokers to push consumers into loans that pay the broker more. The whole system of allowing premiums to be paid to brokers, even when consumers could get a better deal, is the fundamental problem.

    In an ideal world, consumers would be smart shoppers and work with reputable brokers. In reality, many consumers don’t know how to shop, and some brokers will offer a lowball quote they can’t deliver.

    Tim’s original post essentially suggests what upfront mortgage brokers (UMBs) do. UMBs tell consumers exactly what they’re going to charge (usually a set fee or % of loan amount) and then the consumer knows that the broker is working in his/her best interest.

  13. How the hell does Toyota and GM comes in play?

    You have to understand the difference between broker/banker before you can jump into a conclusion.

    Broker essentially have zero risk, whereas bankers do. To become a broker it requires very little, whereas bankers require much more (higher risk). Loan officers on the other hand require almost nothing, which is the reason why it goes something like this: loan officer –> broker –> banker.

    Free market cannot apply for mortgage at this given time, just like how the rules were set up in RE to protect the minority. Same thing needs to be in place for mortgage.

  14. “In an ideal world, consumers would be smart shoppers and work with reputable brokers. In reality, many consumers don’t know how to shop, and some brokers will offer a lowball quote they can’t deliver.”

    This is exactly why I stand on my soap box and say you should not select your Mortgage Professional by shopping rates. Get referrals from people you respect who had good experiences.

    UMB’s pay a fee to call themselves a UMB. It’s no guarantee of getting “the best deal” either.

  15. Ubersalad. Any mortgage originator (broker or banker) can call themselves a Loan Officer. I don’t believe there’s any set definition.

    Where do you fit a correspondent lender into comment 20? Correspondents are more like a banker; yet they broker (they fund in their own credit line and the loan is sold after closing).

    Most consumers would have no idea how to find one or if they should seek one or the benefits of a correspondent lender.

  16. I have lots to say here, but not enough time so I’ll just say in response to Dick Todhunter’s idea to shop via APR, I just received an email from wells fargo a moment ago offering me a zero APR credit card promotion.

    Lucas and Rhonda I agree with. From my vantage point, I see a time in the not-so-distant future when the way loan originators are compensated (no matter where they work) transforms from what it is now into something completely different.

    I regards to giving the consumers a disclosure form, well we already have those.

    The forms don’t work all that well if the LOs aren’t trained on how to use the forms or worse, are trained how to use the forms in order to deceive.

    It’s the nature of the relationship between the LO and the consumer that will transform. Lucas teaches us why.

  17. RE: comment #18-

    If a consumer doesn’t know they’re paying YSP, but is getting a 6.5% rate for a 30 year fixed rate loan with $1200 in costs, is it a better deal than a 6.75% rate with $1200 in costs?

  18. Net branch is not the same as a true banker…you seriously know very little.

    Net branch you are essentially brokering off another bank, no different than being a broker in reality, but you don’t have to disclose YSP.

    True banker is where they fund their own pipeline under their own name and hold the risk of buyback.

    Broker is the guy who OWNS the brokerage, NOT a loan officer working under a broker or in a bank. That’s the true definition of a broker, a guy who owns the brokerage. This thread alone tells me that you guys are purely bloggers and know little.

  19. “Net branch is not the same as a true banker…you seriously know very little.”

    Ubersalad, Is it possible for you to make even one statement free of insult? I’m just wondering?

    I’ve worked as a Broker, Banker, Lender, Account Executive, Correspondent, Loan Officer, Loan Originator… You come up with a title, I’ve done it. I started working in the lending industry as a go-pher when I was 16. About twenty years ago.

    Guess what? Brokers can be forced to buy back loans. I know because I’ve forced then to do so. Brokers can fund loans in their own name. I know because I’ve done it myself. Bankers can broker loans. Been there, done that. Most bankers have no more liability than a broker. I know because negotiating broker agreements is a part of my resume as well. You’re definition of a “true” banker works just as well for many brokers.

    I can tell you it’s not very hard to be a banker because I’ve done it myself. I’ve also helped hundreds of brokers become bankers while I worked for a lender.

    Tell me Ubersalad, since I must know very little about the mortgage industry, what is your resume? Throw your website up here for everyone to review. Give us your LinkedIn profile or something.

  20. Actually, I know very little, also.

    Can anyone tell me why a brokered loan at 6.25% apr with $2,000 disclosed YSP is a better deal than a 6.5% apr, from a bank, with no disclosed profit?

  21. Brian,

    YSPs are paid to the broker by the lender, not the consumer. So, as far as the consumer is concerned, only the rate and associated closing costs matter. Thus, if closing costs are the same as in #26, the consumer is better off with the lower rate.

    The same is true in #29, assuming the only difference between the loans is the quoted rate.

  22. “In an ideal world, consumers would be smart shoppers and work with reputable brokers. In reality, many consumers don’t know how to shop, and some brokers will offer a lowball quote they can’t deliver.”

    This is part of the problem. Coming from a consumer mindset, the entire *point* of having a broker in the first place is that they do all the shopping for you. They’re supposed to look around, find the best program for you, present you with the options, and help you decide.

    I shouldn’t *have* to shop around and contact a number of brokers. Obviously I do have to do so given the way the business is right now, but most consumers figure that’s what the broker does. Seems reasonable to me, as that’s what the broker says they do!! Perhaps I need a broker-broker? I suppose this would be someone that had a database of brokers and could find me a good broker.

    For me, the issue with YSP is that when you are dealing with ONE broker (like most people are) there is a hidden cost that isn’t disclosed until it’s too late and you have the pen in your hand at the escrow office. If YSP was disclosed up-front, then you’d be able to look past those “low fees” that the broker is charging and get a more true picture of the compensation structure. You might think “wow, they’re going to get about $20K for this loan, maybe I’ll pick that other one they’re trying to steer me away from, or perhaps I’ll go and see another broker – seems awfully expensive to me”. Knowing where all the costs are, up-front, can make anyone a better consumer.

  23. SeattleProspectiveBuyer:

    Why does it matter to you what the broker is making on the loan? If the broker is offering the lowest rate you can find after calling around, why does it matter that the broker is earning X commission? You are still getting the best deal available to you.

    On the other hand, if you expect a broker to offer the absolute lowest rates available, your expectation is also unreasonable. No broker (or banker) can guarantee they have the lowest rates. The “lowest rate” does not exist. Rates are constantly changing and fluctuating day to day and based on your individual circumstances. The only thing a broker can do is guarantee a competitive deal relative to the current market place that fits your specific situation.

  24. Russ, has hit it on the head.
    Rates are relative to each individual loan which is underwritten.
    At best rates are a guess up-front based on information given to them by the consumer. Loans are underwritten individually and include the property as well as the individual. Much work is done up front in order to get the information to the underwriter (appraisal, income documentation, etc.). The bottom line is that mortgages are not commodities! They are individually underwritten financial instruments.
    Because so much work is done up front, consumers are forced to “shop” with incomplete information. In order to change it to a commodity the whole industry would have to be reoriented. Not going to happen. Some want to outlaw back-end profit and force front end profit disclosures. Fine, then there would have to be some form of compensation up-front to start the process. As it is now, consumers get much work done before there is any profits made. Not a bad deal for the consumer, considering they can walk away anytime they want. In the state of Florida brokers and correspondent lenders have to disclose YSP 72 hours in advance of closing. I have yet to have anyone even question it. If they did, I would tell them that is what the lender pays us and has no bearing on the deal in front of them.

  25. Hi Russ,

    Not so. A broker/LO has no obligation to get the “lowest” or “best” rate for a prospective client.

    In fact, if YSP is FULLY EXPLAINED to a consumer, the consumer would FULLY UNDERSTAND that instead of receiving a LOWER RATE the broker/LO put that money in his or her pocket.

    Consumers do not understand, and broker/LOs don’t want to be forced to tell consumers that YSP is something they should NEGOTIATE with their broker/LO.

  26. David is getting to the root of the problem. As I mentioned in comment number 25, Compensation for brokers and LOs is going to undergo transformation over many years to come.

    Brokers and LOs should be able to charge an upfront fee for some of the work they do, that they’re not compensated for, such as helping consumers improve their credit score, pre-qualifying, and also LOs should be able to receive a referral fee if, for example, the consumer would be better served with an FHA loan, and the LO’s firm is not FHA approved.

    As it is now, no referral fee could be earned, so the LO tries very hard to place the client into a subprime loan instead. The consumer is not well served in this case.

  27. This is not always the case, Jillayne: “if YSP is FULLY EXPLAINED to a consumer, the consumer would FULLY UNDERSTAND that instead of receiving a LOWER RATE the broker/LO put that money in his or her pocket.”

    The few times I’ve brokered a loan, I add the YSP to the price of the interest rate in order to price the loan. The consumer is getting the benefit of the YSP. Without the YSP, the loan rate would not competitive.

  28. Jillayne, I agree 100% with you on #37…but it will never happen. I sometimes imagine, “what if” I were paid hourly, as an attorney…beyond my clients talking very fast, their would be more respect with my time and if they decided to go elsewhere after time is invested; there are less hard feelings as the time was compensated. It would change the industry.

    I’ve had clients offer to pay for my consulting services; it’s just not how we’re set up and I don’t mind being paid once they’ve found a home and the transaction has closed.

  29. Hi Rhonda,


    The LO is pledging to put the client’s interests above their own, which means fully disclosing YSP at the beginning of the transaction, in a clear and transparent way, so the consumer fully understands what it is, how it can be used, and how much of that compensation is going into the LOs pocket and how much of it is going to be used to pay other costs.

    When this is done, there are no YSP complaints.

    The transparency of the required explanation (of those who voluntarily decide to act as fiduciaries) does more to curb excessive profit-taking than anything else. People who pledge a higher duty to the consumer have already moved beyond profit-only thinking.

    They understand that the relationship with the consumer is more important than maximizing profit on a single transaction.

    But realize that the entire industry isn’t there yet.

    We’ll see the masses start to move in this direction only when (ironically) they realize that they’ll be able to earn more by becoming fiduciaries because they will have earned the ability to charge higher fees, and they will be worth their higher fee.

    We’re at least 10 to 20 years away from that, though.

    There’s nothing stopping any LO from voluntarily pledging a higher duty today, though. Realize that it’s not just something a person can say on his or her own and then “it is so.”

    An LO must make that pledge to a neutral third party (like a professional association) that would have the ability to monitor consumer and competitor complaints regarding ethical conduct.

  30. “An LO must make that pledge to a neutral third party (like a professional association) that would have the ability to monitor consumer and competitor complaints regarding ethical conduct.”

    Is that neutral third party receiving any compensation from the LO? And/or how is the neutral third party compensated?

    I’ve checked out organizations such as UMB and have decided that I don’t personally need to belong to anything to prove that I am ethical and performing in my clients best interest beyond my own.

  31. Hi Rhonda,

    “The few times I’ve brokered a loan, I add the YSP to the price of the interest rate in order to price the loan. The consumer is getting the benefit of the YSP. Without the YSP, the loan rate would not (be) competitive.”

    Yes….and not all brokers/LOs do this with YSP.

    I think a change in the way brokers/LOs are compensated can and will happen. Broker/LO compensation is going to transform from what it is now to something more like what other professionals do: charge by the hour for work performed.

    These are exciting times we’re living in.

  32. Pingback: Let’s Do Away with Loan Origination Compensation | Rain City Guide | A Seattle Real Estate Blog...

  33. Do you mean do they pay membership dues? Yes.

    If LOs want to enter the world of professionals, they’re going to have to pledge membership dues to a professional organization that would oversee ethical conduct, above and beyond state and federal law.

    today, any LO could say a personal “oath” to the universe: “I pledge to be a fiduciary.” However, without any oversight of that pledge, it’s just like any other promise we all hear out there:

    A promise for great service
    A promise for low rates
    A promise for low fees
    A promise for a no cost loan (the biggest broken promise of all)
    A promise to put the clients interests ahead of ones own.

    Any of these promises are subjective, like beauty, love, or art. They mean different things to different people.

    When an industry group decides to become a profession, they get together and identify common values of the industry, virtuous character traits that they believe others in the industry, including their competitors, should aspire to, and then they also agree upon certain principles of behavior; action-oriented ways of interacting with clients, with competitors, and with the general public. All this generally leads to promoting good consequences when consumers interact with mortgage people, and this also leads to consumer confidence in the industry, which we’re sorely lacking right now.

  34. Okay…Jillayne, so if a LO pledges their money and makes an oath to your company (where you’re compensated) promising to do what they should be doing automatically, they can be declared “ethical”?

  35. How the heck did I miss this string!

    Fascinating arguments!

    I have worked where I did not have to disclose YSP (direct lender/bank). At the time I just didn’t know what it was, but I knew we did not have it.

    In general, I believe we had higher costs and rates than did the wholesale channel, but since I did not have access to those rates, i could not confirm it.

    I now only broker loans, as correspondent does not seem to provide as competitive rates as brokered. I have ALWAYS had to disclose YSP, and it has not been an issue even once. Not at initial disclosure, not at signing. Let’s hope for the CONSUMER’s sake they do not do away with YSP, as it removes a very valuable tool for them in the lending process.

    Let’s face it, everybody thinks the guy next to him makes too much and works too little, and think the inverse for himself!

    Let the marketplace work. Abolish APR. It’s the dumbest way EVER to shop for a loan (Rhonda correctly points that out in nearly every blog).

    To make a rational comparitive decision, the borrower only needs to know 3 things (listed in order of importance):

    1. What are the terms of the loan program, and is it appropriate for the situation.

    2. What are the loan costs.

    3. What is the interest rate and payment(s).

    I generally quote on a “cost not to exceed” basis, so that one variable is eliminated for the borrower. If a borrower wants to know what I am being compensated, I would offer a range of compensations, as I cannot know exactly what I will make until a loan closes, as the costs that I have to cover may vary.

    I lose a lot of business by this approach to competitors that dizzy up the borrower with bogus or misleading numbers, but I mostly get to keep the clients that I WANT to work with. I do NOT need all of the borrowers in the world, for me to be happy and moderately successful.

  36. Roger, I should probably be emailing you offline…I’m only doing this at RCG because you have mentioned this point several times: Correspondent Lenders get better pricing than Brokers because they take the credit risk of the loan by funding it in their lines. If you’re not receiving it at your company, is it because of how your compensation is structured where you’re employed? I can broker or fund in our line, correspondent (not brokering) is better every time. Plus, I have two sisters who are Wholesale Reps for major banks…they’ll tell ya the same. 🙂 And not just because I’m the oldest sister!

  37. Rhonda

    That’s allright, we can talk here. Thanks for the offer to communicate offline, I’d like to take you up on that as well.

    I said,

    “I now only broker loans, as correspondent does not seem to provide as competitive rates as brokered”,

    and you disagree. We are both right.

    I understand that different mortgage brokers (and loan originators) have different correspondent pricing. I can only factually report on the broker vs correspondent pricing that I have personally seen. The brokered pricing has been consistently better.

    I have no doubt that the pricing and compensation structure is different in our respective position, and I have no idea which is better. I have consistently endeavored to put myself in the best position I can to help my clients.

    In the course of that process, I got tired of all the Brokers selling the benefit of using correspondent lines (to the loan originator) by saying “…and you don’t have to disclose YSP”.

    I do not need to hide my compensation (and/or that of my broker) from my borrowers. As long as my clients get great service at a competitive price, and I can take a paycheck home, everyone is happy.

    It is unfair that banks and correspondent lines can legally hide their compensation, while brokered loans must disclose it, but I can live with that unfairness. I choose to fight the important battles, such as preserving the right to receive YSP compensation for brokered loans (which, if applied properly, benefits the consumer).

    I have a sense (based on your written body of work)that had you and I followed the same paths to get to where we are now, there would not be much difference in our philosophies. Since we each come from our unique experiences, we differ in our outlook.

    Viva la Differance!

    And, if it makes any difference, I have 5 older sisters, and 2 younger ones. I have learned a lot from them all! 🙂

  38. Roger, I broker and close in our own lines as well. As a correspondent, we receive SRP. Some mortgage companies may elect to keep the service release premium instead of passing it to the loan originator who can then factor it into the rate (like I do) allowing it to benefit the consumer. (This has nothing to do with how mortgage companies “split” commissions with originators).

    When I first began in mortgage 8 years ago, after leaving the escrow/title industry. I was VERY sensitive about YSP as I would review them with borrowers during signings when they would ask about the dollar amounts shown in parenthesis.

    Experience has allowed me to be very comfortable with disclosing what I make as a correspondent. I have no problem telling a client that the lender is going to pay me x on the back end or that the lender is paying zelch on the back and therefore the borrower is paying for the origination.

    I’m completely transparent with my compensation.

    Check out Flagstar’s rate sheets. They show both their Broker and Correspondent rates.

    For Friday’s rates for 30 day:

    Broker: 5.375% is just barely below par pricing at 99.914. (For any consumer out there…this means that if you pay 1 point, the lender is making 0.914% for origination).

    Correspondent: 5.375% at 100.189%. (If the lender charges 1% origination, they make 1.189%)

    Broker: 5.5% is at 0.360%. back.

    Correspondent: 5.5% is at 0.635% back.

    As a correspondent, with this example, I could easily do 5.375% at 1 or 5.5% at a half point. It totally depends on what the scenario is as far as how I price a loan. This illustration is just to show you that Correspondent Lending receives better pricing than brokers. Why?

    Correspondent Lending takes on the credit risk of the loan as we’re underwriting the loan and funding it in our credit lines.

    It’s also been my experience that brokered loans have higher costs associated with them than when you close a loan in your companies credit line (again, this just may be Mortgage Master’s cost are lower…I just know “my experience”).

    Different lenders do provide different companies different rate sheets. Let’s say Flagstar (since we’re picking on them) decides that Mortgage Master has a terrible lock fall out…they could adjust our pricing on our rate sheets by 0.25% in fee (or what ever they want) or if they’re really trying to get our business, they may sweeten the pot. All lenders do this.

    Viva la Differance!

    Brian Brady did an excellent job comparing the difference between Correspondent Lenders and Brokers…click here.

  39. Rhonda:

    I’m sure in your situation it makes more sense to use correspondent lending. In mine, it makes more sense to use brokered lending. I’m also pretty sure that if brokered lending made a better fit for your client, you would recommend it over correspondent.

    I never claimed that any individual bank’s brokered rates are less than their correspondent rates.

    I said:

    “I now only broker loans, as correspondent does not seem to provide as competitive rates as brokered

  40. Roger, thanks for the clarification. I do have better pricing than Flagstars from that date…they just happen to be one of the lenders that provide both broker and correspondent rate sheets and I wanted to compare apples to apples with the same lender, same date and time.

  41. Excuse my ignorance, since I haven’t worked in a broker shop since 2003, and I’ve been with primary lenders ever since. If you are a correspondent, do you still have to disclose like a broker? If you do, then nevermind. If you don’t, then wouldnt it make sense to align yourself with a primary lender as a correspondent? I know the first aguement against is you then wouldn’t represent hundreds of lines. But my understanding is that most lending is now homogenized, and that isn’t changing anytime soon.

    Start making lemonade folks, Uncle Sam has a Nationwide Lemon Farm. 🙂

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