Two Coke machines are sitting next to one another. One charges 65 cents, the other charges 70 cents. Which one are you going to put your money into? Would it matter if the guy with the 65 cent machine actually made more profit?

Great point Todd. Bankers can hide their YSP and charge whatever they want without disclosing compensation; alas they then potentially overprice themselves without an explanation besides the one you have just given. If a borrower has access to wholesale/correspondent pricing, a Banker (or Broker) can run, juke, and jive, but can’t hide. DiTech, a very popular online banker (who does not have to disclose YSP), completely prices themselves out of the game when compared to a broker or banker who offers 100% transparency to correspondent pricing. Their APR’s are substantially higher than most other bankers and brokers quotes but this does not stop them from originating thousands of loans per month.

Yes, a broker could lie about APR. You should also look at other factors when choosing a loan agent. Referrals, experience, and a one on one discussion about your financial needs are all very important. But the only way to compare numbers is to look at the rate and fees being paid, not what a broker/banker is making. In addition, the same agent who might lie about APR certainly wouldn’t stop there. They could lie about how much they are making as well. If the loan at closing doesn’t add up to what was being initially offered, then the borrower should look at declining the deal. For honest loan agents, APR is still the best measure.

Agreed. Caveat Emptor….My business is also 100% referral; I have 8 years experience, and comprehensively consider their present and future financial needs.
How much a broker/banker is compensated is directly linked to how much fees and what rate a borrower receives, no way around this either. Consumers have never had access to correspondent pricing sheets, and thus have had to rely on the 3-4 broker/bankers they shop to provide the best deal. Once consumers can ‘see’ correspondent pricing, they will also see lower (and lower) APR’s.

Your point about APR seeming trivial on a $500,000 loan doesn’t add up to me either. The difference in this case between a 6% rate, 30 year fixed on a $500,000 loan with zero closing costs and $5,000 in closing costs is .093% (6% vs 6.093%). How many people out there would choose the 6.093% rate? Even if closing cost were $2500, the APR would be 6.047% compared to 6.093%. APR works. Brokers and bankers don’t like to talk about it because it’s difficult to explain how the calculation is made. But the final number is a very simple indicator of which is the cheaper loan.

Again, agreed. I never said APR doesn’t work, rather, the APR differences on larger loan amounts can be made to seem trivial to a borrower. Let’s face it, it’s not hard for a broker/banker to marginalize a five one-hundredths of one percent higher APR to a borrower, especially if you preach the other ‘benefits of working with a professional’. Your number calculation examples are correct and work in a vacuum, but are easily maneuvered around in the real world by brokers and bankers with an ounce of salesmanship.

Your message may rub brokers the wrong way, but BANKERS love it. Your advice makes it easier for them to overcharge a borrower. As a consumer advocate, your message rubs me the wrong way because focusing on YSP to much can eventually lead to getting a worse deal. Mortgage industry profit is a giant shell game. You have to look at all the shells.

Well, as a banker it should rub you the wrong way too. Putting correspondent pricing in the consumer’s hands will make it far more difficult for bankers to overcharge a borrower. Brokers have been miffed for years as to why Bankers are allowed to hide their fees. Why are Bankers afforded this veil? And for all those bankers who tell their clients that they don’t see one penny of YSP’s, or they get paid on volume, or _______ (fill in the sales script)….I doubt the consumer really cares.

You are missing my point Todd. Consumers should be given access to the exact rates they qualify for and negotiate a flat fee with a broker/banker from there. The fee can be paid in YSP, up-front, or both. YSP’s are the borrowers money to finance closing costs if they so choose, not to line your pockets. YSP is an ambiguous component of APR, and a very important one. As you say, look at all the shells.

Yes, a broker could lie about APR. You should also look at other factors when choosing a loan agent. Referrals, experience, and a one on one discussion about your financial needs are all very important. But the only way to compare numbers is to look at the rate and fees being paid, not what a broker/banker is making. In addition, the same agent who might lie about APR certainly wouldn’t stop there. They could lie about how much they are making as well. If the loan at closing doesn’t add up to what was being initially offered, then the borrower should look at declining the deal. For honest loan agents, APR is still the best measure.

Your point about APR seeming trivial on a $500,000 loan doesn’t add up to me either. The difference in this case between a 6% rate, 30 year fixed on a $500,000 loan with zero closing costs and $5,000 in closing costs is .093% (6% vs 6.093%). How many people out there would choose the 6.093% rate? Even if closing cost were $2500, the APR would be 6.047% compared to 6.093%. APR works. Brokers and bankers don’t like to talk about it because it’s difficult to explain how the calculation is made. But the final number is a very simple indicator of which is the cheaper loan.

Your message may rub brokers the wrong way, but BANKERS love it. Your advice makes it easier for them to overcharge a borrower. As a consumer advocate, your message rubs me the wrong way because focusing on YSP to much can eventually lead to getting a worse deal. Mortgage industry profit is a giant shell game. You have to look at all the shells.