Archive for April, 2008
Mortgage Yield Spread Premiums and The Transparency Thing
April 15th, 2008 Categories: Real Estate Technology, Real estate economics, Tranparent mortgage pricing, Yield Spread Premiums, ratespeed
Yield Spread Premium: A consumer option to finance some or all of closing costs by accepting a higher interest rate than they otherwise qualify for.
There has been much debate about Yield Spread Premiums (YSP’s), from overall required disclosure policies to their potential abolition. All mortgage professionals have a personal opinion on the topic, some resort to denial when it comes to their relative importance in relation to the overall mortgage transaction, others will get down right hostile regarding the topic of proper YSP disclosure and use.
Regardless of status-quo industry opinion, YSP disclosure is a vital component to address amidst the mortgage mess we’re in. Many other industry pundits have writtten about YSP’s, opinions vary as widely as the colors of the rainbow, most of the articles I’ve read were written after this article was posted on the Active Rain real estate social network. The post pales in comparison to the comment thread, which is most entertaining. The same article is linked internally (below) as well…
I started writing about YSP’s in early 2006, even before this site became a ‘blog’. They’re an interesting and important topic because Yield Spread Premiums drive business transactions in the mortgage industry, this is a hard fact. As a former mortgage broker (owner/operator), YSP’s were a focal point of who we did business with as a matter of practical business economics.
The wholesale lender who offered the ‘best pricing’ (paid the most in YSP’s for a given set of products) often got a bulk of our business, unless their processing was so terrible it caused closing dates to be missed or something of that magnitude. Any broker or banker who tries to represent otherwise is either lying or talking out of both sides of their mouth.
Improper disclosure of YSP’s have had a staggering detrimental effect on this industry. Very viable, valuable programs like Option ARM’s were destroyed because of improper YSP disclosure. Brokers sold these programs based on the low monthly payment option they offer and then juiced them with margin that caused consumers to defer inordinate amounts of interest to the loans principle balance and caused future rate adjustments to blow people right out of their homes. Similar dynamics exist within other mortgage programs as well.
I’m willing to step out there and say that improper YSP disclosure and use are the cause for many foreclosures in todays market. YSP’s foster higher interest rates via higher margins. Higher margins are especially apparent when an ARM adjusts, (can) cause substantially higher payments. Higher payments, or payment shock, cause defaults and subsequently foreclosures. It’s not a stretch to ascertain that proper YSP disclosure, implementation and greater consumer understanding could have prevented a number of foreclosures.
Its worth mentioning that I’m not here to lobby for the elimination of YSP’s…eliminating Yield Spread Premiums would be a catastrophic mistake, they are a vital tool for many consumers in the market for a mortgage. The average mortgage broker(age) would close as soon as their current pipeline of grandfathered business dried up if YSP’s were outlawed, it would crush the small business owner brokerages, although this may appeal to big business and the retail banks.
Properly enforcing how YSP’s are disclosed and used is vital to a fledgling mortgage broker (and banker) industry. Many in the industry will argue that Wal-Mart or some other retail outfit doesn’t disclose how much they make on a given product so why should they?…Such analogies are akin to comparing apples to arsenic. It’s worth mentioning the ridiculous laws that allow for mortgage bankers (and retail banks) the leeway to NOT have to disclose YSP’s while mortgage broker must disclose them. Hypocrisy isn’t a strong enough word here to describe the two-faced mug of the greater mortgage industry.
If their definition is as the first line of this post dictates, then every last penny of YSP on any given loan must be disclosed and credited to the consumer. If a wholesale lender is offering ‘50 bps (.5%) in YSP for closing a 5 Year ARM Purchase’ as this months ’special’, that ’special’ must be credited to the borrower.
Mortgage professionals must recognize that they are not entitled to YSP’s, they’re not a tool of personal enrichment, not a profit center, and are the business of the consumer. They need to drop the elitest attitude, compete on service and experience, and most importantly of all disclose interest rate pricing with 100% transparency, not 90% or 99%…100%.
For the mortgage professionals who say ‘I already disclose/do business this way!!’ Even if you are telling the truth in fact, nobody believes you. Consumers should ‘trust but verify’, alas there is no way to verify using todays web-based tools; blind trust is something a consumer is less and less willing to afford a perceived perpetrator of deceptive practices. A mortgage professionals value is in their service, fulfillment, and expertise levels, not interest rates. Interest rates are a commodity, a good mortgage professional is not.
Running a mortgage business under the Transparent monkier isn’t easy, you just don’t flip a switch…I was engaging David Podgursky via a Facebook convo, he was telling me that while he wanted to run with the Transparency movement, he was having a difficult time with how to ‘work’ this paradigm shift:
David:
I don’t know… I want to like transparency but I think that sometimes haziness is better … and it isn’t like I hide things but transparency in broad strokes seems to me would have implications that clients would shop based on the professional fees and that alone…
I work in Florida… we HAVE to disclose front and back end… so it is transparent! that BS HUD change makes it even more so!!
TXB:
Transparency in any marketplace causes that marketplace to have to figure out how to run more efficiently, so they can cut costs to accomodate the ever enlightened and discerning consumer. Its a nebulous, tricky proposition but an eventuality none the less…
The way traditional mortgage shops run, split % based commissions and all, are counter to participating in a transparent marketplace. This is where change needs to happen, at the core of the business model.
It’s professionals like David that inspire and motivate me. He does business the right way and wants to be as transparent as possible but the fu*#ed up system gets in the way.
Consumer demand is what can and will change how this industry operates. Consumers are demanding greater transparency and lower costs…and RESPA law happens to back them up. There are plenty of professionals who currently and/or willingly do business this way and I want to help. My intent is genuine, purposely designed to enlighten the consumer and empower the maligned quality mortgage professional.
While this article is sure to be deemed as self-serving, since I’m about to launch an anonymous mortgage application that discloses a participating mortgage professionals wholesale rate pricing feeds, every penny of YSP unveiled, what shouldn’t be lost in translation is the importance of higher education and transparency for the mortgage industry. No amount of legislation will fix whats wrong here, big biz lobbyists will make sure of that.
The mortgage industry still needs an enema and I believe I’ve got a potent one 
Next: How to Run a Successfull Transparent Mortgage Business
Also See:
Yield Spread Premiums, a Quick Study
Yield Spread Premiums, Capital Hill Testimony
RateSpeed, The Mortgage Rate Search Engine
Indecent Disclosure, Yield Spread Premium Class Action Lawsuits on the Rise
RateSpeed, The Automated Transparent Anonymous Mortgage Rate Pricing Widget
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RateSpeed, The Automated Transparent Anonymous Mortgage Rate Pricing Widget
April 12th, 2008 Categories: Transparency in Mortgage Pricing, ratespeed
Ahead of a formal PR announcement this coming week, I’m placing the page ‘What is RateSpeed?’, with some additional information, here as a post.18 months, 2 funded start-ups and 3 technology providers later, the concept shall finally become a reality.
When it launches in May of 2008, RateSpeed™ will give consumers their first glimpse at wholesale mortgage rate and pricing information without broker/banker manipulation. The information will be free; the application anonymous.
Why would a mortgage pro want anything to do with this?
RateSpeed™ is based on a proven, robust, real-time mortgage data exchange platform. It will be offered as a widget mortgage professionals can embed on their own websites so professionals and businesses may maintain 100% of their brand identity. Using the 12 most common credit and financial risk factors that influence mortgage rates, RateSpeed™ will Search a broker/banker’s personal wholesale lender database and return the most favorably priced loan programs, automatically. Think of RateSpeed as a front end pre qualification Underwriting Engine.
Give consumers what they want, easy access to accurate mortgage rates without having to directly engage you…and you don’t have to waste time selling yourself to a guarded consumer before you can get enough information to do the same, only manually. Follow up with the exclsuive leads RateSpeed provides via validated email, credit and financial data as well as the specific pricing results they’ve already received from your wholesale lenders.
The efficiency RateSpeed stands to bring your business allows you to establish a logical fixed fee for services, based on loan criteria, consumer and process needs. The fee a mortgage professional chooses to set is entirely their choice. As consumers understand that rates change daily, sometimes twice, compensation shouldn’t change, as it often can due to inefficiencies within the current mortgage Matrix.
RateSpeed is scalable to accommodate any individual broker or bankers existing wholesale lender relationships personal pricing feeds. The application offers unlimited consumer ‘pricing pulls’, no ‘cost per use’ fee structure.
Why would consumers want anything to do with this?
Real Rates In Real Time. Imagine calling a mortgage professional and anonymously giving them the infomation they need to accurately quote you an interest rate, and having them disclose exactly how much in cash rebate that accepting a higher rate qualifies you to receive. Imagine the mortgage professional doing this in 15 seconds. Dream with me cause dreams come true. Want to check wholesale rates from your local mortgage professional everyday, twice, five times per day? Have at it. Watch the market in real time.
We hope RateSpeed™ spawns a national network of transparent mortgage professionals who not only disclose true par rates (the rates the banks actually approve you for), but offer flat-fee loan services as well. Under this model, consumers can expect a fixed-fee negotiated up-front that never changes, determined not by the amount of the loan, but the level of service required to close it. 100% of Yield Spread Premiums are disclosed and credited towards a borrowers closing costs, as is their black letter law intent.
To qualify as a RateSpeed™ affiliate, a mortgage professional must apply for a license, which will require a cursory level background check and abide by its terms of use, which will include adoption of a transparent flat-fee model like the one described above.
Built out by a mortgage industry veteran and acclaimed pioneer in the transparency movement, RateSpeed is designed to be the most robust application of it’s kind. The XBroker is partnering with a nationally acclaimed mortgage technology platform so professionals and consumers may access the largest and most reputable selection of lenders and programs in todays market.
Don’t settle for someone else’s watered down version of a mortgage transparency widget.
There is only one RateSpeedTM—Real Rates in Real Time. Transparency in its truest form.
Be Part of The Radical Transparency Movement, Sign Up For Insider News Here.
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TechCrunch Party In Hollywood, The XBroker Post Party Review
April 11th, 2008 Categories: Random, Techcrunch, retrove
Quick observations and notes about the TechCrunch Party in Hollywood last night:
- Ate at Roscoes Chicken and Waffles prior to the party, which was sooo good despite the odd combination of foods. Not the healthiest meal but…
- The venue (The Vanguard on Hollywood Blvd) was Chic, as advertised. Many geeks inside, as advertised.
- There was an open bar all night. It’s a good thing the conversation was good, inhibiting me from pouring more alcohol down my throat, which would have lowered my inhibitons, which would have caused next day embarassment. Too many cameras around to act a fool.
- Mike Arrington looks like he’s lost weight.
- Perry Ferrell of Jane’s Addiction fame was the DJ, I had no idea that it was him until Jeff Turner pointed it out via his Flickr account. He’s really toned his look down (Perry that is, Jeff’s still flambouyant as ever).
- Lot’s of smart people with great ideas. Lot’s of head scratching stuff too, not going to call anyone out here as I appreciate the entrepreneurial dream.
Hung out around ‘the couch area’ of the club which looked like VIP but was for anyone to sit and chill, with Dustin Luther, Jeff Turner, Justin and Robert from DiverseSolutions.com (plus all their lovely wives), ‘Jessie B’ (thats what everyone called him, not just Jessie) an enigmatic guy who has a striking resemblance to Dennis Miller both in looks and smarts.
Jessie B. has some interesting ideas, one of them called ReTrove an aggregator of the listing aggregators, for lack of better description.
It’s still in early beta (= a little slow and glitchy, but cut it some slack) yet the concept is clear: To become a singular starting portal for consumers looking to Search real estate related information, mainly listings.
As major players (Prudential, Realogy etc) submit their listings to the Zillows and/or Trulias and/or Roosts etc, I as a consumer must visit multiple sites to find all of the listings in a given area. ReTrove is attempting to address this problem.
Type in your city and state, related links populate the page from many of the larger aggregators.
Searching Irvine, CA I received results back that included: Zillow, Realtor.com, Cyberhomes, Movoto, and Windemere (2873 links total). The number of indexable pages the ReTrove is creating must be massive, thus creating some serious SEO juice as the site matures. Looking forward to seeing how ReTrove evolves. Jessie B says late July is his target for greater site refinement and a broader announcement to the world.
Finally, a big thanks to Loren Nason (FutureofRealEstateTechnology.com) for organizing the TC get together, it was a blast.
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TechCrunch Party In Hollywood
April 9th, 2008 Categories: Techcrunch
Sooo stoked to be going to my first Hollywood soiree! The TechCrunch party at The Vanguard promises to be one to remember.
Hoping my new Lumix TZ5 arrives by tomorrow.
Other re.net regulars attending:
Loren of www.futureofrealestatetecnology.com (h/t to Loren for the h/t about the party)
Robert of www.diversesolutions.com
Justin of www.diversesolutions.com
Dustin Luther of 4realz.net
Jeff Turner (?) www.realestateshows.com
Matt Dunlap (?) www.realEspace.com
Anyone else? Drop me a comment.
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Twitter: MicroBlogging Tool or Anti-Productivity Vice?
April 7th, 2008 Categories: microblogging, twitter
Twitter is fast and simple way to IM your thoughts and communicate with your own little micro-community of followers, often times called microblogging. I’ve got a little over 100 followers, which may seem like a lot until you look at Andy Kaufman (who got me started) and his 1320 *gasp* followers.
I own a BlackBerry, or as most of my friends call it, a CrackBerry. They will play this funny game with me and hide my BlackBerry until I get pissed off. It usually takes less than 5 mins before I start physically threatening people until they return it to me.
There is something about the little endorphin drip one gets from real time access to emails, text messaging, communication et al…Twitter takes it one step further by juicing up traditional text messaging to speak to a community of interested people, which creates conversations on the fly. I’ve got Twitter feeding to my CrackBerry, double trouble…
TweetStats will tell you how much time you waste spend ‘Twittering’, see the most popular @xxx replies (@housechick and @laniAR rule twitter convos in my world), as well as aggregate daily and hourly tweets (in other words what times of the day you are least productive/bored). You can also check out anyone elses TweetStats simply by punching in their username.
There are alot of people addicted to the Twitter drip. So, if you’re feeling guilty about how much time you spend twittering, you can make yourself feel better by checking out who’s really got a problem at TweetStats…
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