Somewhere along the line, the Mortgage Cartel discovered that if you explained loan costs to a borrower using “points” instead of dollars, their brain activity would slow, their resistance would drop, and they’d tip like sleeping cattle.

Nowadays, people are (allegedly) more savvy and “point shop” for rates/loans. In response, the mortgage industry’s created the “No-Point Loan,” riddling the HUD-1 with a poisonous cornucopia of junk fees to hide the “points” that are still there: Broker Fees, Application Fees, Processing Fees, Lock Fees, Courier Fees, Origination Fees—not to mention a host of acronyms even I can’t decipher.

It’s all bullshit. Whether they’re labeled discount, buy-down, rebate or any other euphemism, points are nothing but verbal gymnastics designed to hide the Mortgage Cartel’s secret sales tax.

You’ve got to stop thinking in terms of “points” and get back to dollars and sense. “Points” are converted to dollars by simply multiplying the point (%) value by the Loan Amount, ie: .25 “points” (.25%) x $300,000 = $750.00.”Loan Points” reflect the amounts borrower must pay directly to the lender at the time of closing to obtain an interest rate below the specific mortgage program’s Par Rate. Assuming the flow of cash follows the strict straight line above, these would be true “Discount Points.”

“Rebate Points” reflect the amount a lender will pay at the time of closing in exchange for an interest rate higher than the specific program’s Par Rate. This is commonly referred to as Yield Spread Premium (YSP).

And here’s where the trouble starts:

Broker/bankers routinely quote inflated interest rates that rebate cash (YSP), and at the same time tll the borrower they can “buy down” the (inflated) rate by paying “Discount Points.” The borrower thinks they have to pay to get the lowest rate, when in reality all they’re doing is handing thousands of dollars over to the broker/banker who merely hid the Par Rate they should have gotten for free.

Even more dangerous, mortgage bankers can legally hide YSP rebates from consumers and pocket them without disclosure. Mortgage Brokers are required by law to disclose all YSP rebates on the GFE and HUD-1. Now, if you think it actually happens, go sit in the corner next to the people that believe in the Tooth Fairy and the “No Points/No Fees Loan.”

Want proof? Here’s a real-life example of how a typical “no points” deal turns into an $18,000 payday.