Disclose Fixed Fees to Repair the Mortgage Broker Business Model
September 9th, 2006 Categories: Mortgage News
FACT: It doesn’t cost a mortgage broker/banker any more to close a $1,000,000 loan than it does a $200,000 loan, assuming the same documentation type. Same internal cost, same effort. So why is should one loan pay five times more than the other? Excellent question.
All things being equal, what are mortgage services worth? What’s fair for both sides? In today’s market, it simply isn’t practical for a broker/banker to charge much less than $2,000 to close a loan. Although this threshold is likely to decrease as technology continues to offer broker/bankers the prospect of ever greater efficiency, the costs associated with originating a mortgage and the right to a reasonable profit remain. This is a business, after all. So what’s the number?
I can hear the whining from spoiled broker/bankers already. "How do you expect me to live on a lousy $3,000 a deal?" Easy, considering the CPA (cost per acquisition) of a closed mortgage loan these days runs about $1,200—which makes a $3,000 "rip" a 250% ROI (return on investment). Hell, if you can’t find a way to survive on that kind of margin, it’s time to start looking for a new job, or better yet, get a new business model.
On the consumer side, you may be saying to yourself, "$3,000? Why would I pay that when I can get a $395 flat-fee loan from DiTech?" YOU SHOULD BE SO LUCKY. For the inside scoop on that load of manure, click here. As a consumer, GFE’s and HUD-1’s can be so difficult to interpret that it may look like you’re getting a good deal—one even cheaper than the XBroker fixed fees above—but in reality the broker/banker’s putting at least $10,000 in their pocket. It’s a game of industrial-strength smoke and mirrors.
Think you may have been duped on your last mortgage? Wonder if you’re getting ‘the business’ on your current deal? It’s time for a Mortgage XRay.
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Is it legal for a broker to charge the client a point, loan fees, and get a Yield Spread Premium all together on one loan? Also, is the yield spread premium paid by a lender to the broker paid to them in one lump sum at the close of the loan or in increments?
Thank you for your assistance, Gigi
Yes…it’s very common. YSP (all fees) should have been disclosed well prior to closing for your review, at least 72 hrs.
YSP is paid in one lump some at the close of the loan…if someone told you they were receiving YSP in increments, this probably means ‘under the table’…interesting question, care to elaborate?