Instead of responding to numerous emails I’m reducing my quick and dirty thoughts to this post… so please excuse the mortgage speak without detailed explanations and definitions…

Move created a mortgage ‘decision engine’ that effectively processes relative financial, credit and other risk based factors to generate mortgage rates, their costs, as well as subsequent pre-qualifications and approvals for consumers.  They simply tweaked a different loan qualification system and turned it into a mortgage specific version.   They’re a big technology company that employs smart people, so I’m sure they’re doing a good job with that.  Move then passes this neatly wrapped exclusive lead to Cornerstone Mortgage, the licensed mortgage banker who processes the rest of the required paperwork and closes the mortgage with the borrower.

I’m sure they’re are all sorts of reality TV worthy details to air, but I don’t know nor do I care about Move and Cornerstone’s internal business relationship or how their offering screws with a given real estate brokerages internal lenders (since Move is integrating this mortgage tool with listings provided from real estate brokers & their MLS’s).

Automated mortgage qualification/decision/approval engines have been around for over 10 years, initially only used internally by those in the mortgage industry.  This class of technology has increased in efficiency and ease of use to the point where a slightly tech savvy consumers can now effectively ‘qualify’ themselves for a mortgage.  As such, mortgage lead curators like Google (Comparison Ads), Zillow & Lending Tree as well as bankers like DiTech and Quicken Loans have used variations of what Move is providing for quite some time… all in the name of capturing the Internet mortgage consumer.

The main degree of differentiation in Move’s offer to the general consumer is the exclusive relationship with a single mortgage banker, Cornerstone, allowing the pairing to monitor and control the consumer experience much more efficiently.  I suppose their user interface is real nice and fresh too.  Otherwise you’re not likely to find anything new or novel about MortgageMatch.

Let me explain in terms that are easier to understand, in dollars and sense.

Below are the rates & costs for a given scenario (highest credit quality, provable income and assets, low risk loan & property factors) on Mortgage Match:

MortgageMarket Rate and Program Quote

Points to note:

• 309,000 Loan Amount
• 4.5% interest rate
• Fee for 0.750 point = $2317.50
• Lender Fees & Closing Costs = $6060.20

Next are two examples of what was available directly from the wholesale market using the exact same given scenario- High quality borrower and property qualification factors, in the same zip code for the same 30 year fixed interest rate within minutes of pulling MortgageMatch’s quote.  (I can’t tell you who’s providing the info so as not to compromise my sources, however, table B references what was available from Citibanks wholesale division earlier today… do not call Citibank and ask for their wholesale department, they don’t deal with consumers directly):

A. Large Mortgage Banker Direct Pricing

B. Direct Wholesale Rate Mortgage Pricing

Please draw your attention to the 4.500% interest rate in each table.

In table A. the price next to the rate is 100.706.  In table B. it is -0.721%.  Two different formats but similar results that state this 30 year fixed 4.5% interest rate will yield or pay .706% and .721% (respectively) of the loan amount to the borrower.

Let me make this even clearer.

The price in Table A  yields or pays $2181.54 to lock this 30 Yr-Fixed 4.5% interest rate.   Borrower must still pay 3rd party closing costs.

The price in Table B yields or pays the borrower $2227.89 to lock this 30 Yr-Fixed 4.5% interest rate.  Borrower must still pay 3rd party closing costs.

In MortgageMarkets offer, they are charging the borrower .750% of the loan amount or $2317.50 for their 30 Yr-Fixed 4.5% interest rate.  Borrower must still pay 3rd party closing costs and additional Lender Fees.

So, MortgageMatch is really making ~$4500.00 plus additional Lender Fees, not 2317.50 plus additional Lender Fees (and 3rd party closing costs).

That’s expensive.

For me, its always been about unfiltered access to wholesale mortgage rates, directly from the source, subject to no manipulation by any 3rd party… pure information of the highest integrity… radically transparent.  Good customer service is expected, I want to know exactly what rates I qualify for and at what cost.  I want to pay a fair, clear fee for value received from a mortgage professional.

Show me what I truly qualify for and set the fee to process my mortgage in simple dollars rather than ambiguous ‘points’ that have nothing to do with the interest rate.  If Joe Mortgage charges $2000 and John Mortgage charges $4000, John has to justify his larger fee with a tangible explanation and he’s gotta back it up with references.

This dynamic still does not exist in the marketplace and until it does all these ‘new’ offerings are doing nothing but increasing the velocity of the same old convoluted, untrusted mortgage model.

I really look forward to the day when the greater mortgage industry implements technology and practices that comply with true full disclosure policies rather than financial charades.  In the meantime, if you need a reference to a mortgage professional who discloses things as I’ve described, hit me up.

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Move Launches MortgageMatch- Same Cat, Similar Spin

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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Mortgage Yield Spread Premiums and The Transparency Thing

While this is progress, their use in relation to their intent is still misunderstood, manipulated, and maligned. Although more consumers are now aware that YSP’s are cash rebates Lenders pay for a borrower to accept a higher interest rate than they qualify for…this hasn’t stopped Brokers and Bankers from misusing them as a tool to subjectively and unjustly enrich themselves.

Definition.
Even well educated broker/bankers can’t properly define YSP’s intended purpose per RESPA letter law. As explained in the RESPA Policy Statement, yield spread premiums should be proposed “as a valuable option that permits home buyers to pay some or all of the up front settlement costs over the life of the mortgage through a higher interest rate.”

In reality, YSP’s are shrouded within the complex structure of real estate settlement procedures to principally allow mortgage brokers and bankers the ability to impose higher prices on borrowers for their direct benefit.

Disclosure.

Many broker/bankers will disclose YSP’s in a range of fashions, which may appear to protect the borrower, but appearances are deceiving. A prevailing practice among brokers is to enter a range of 0% to 5%, which leaves the broker with complete freedom of action, while providing the borrower with no usable information.

Other brokers won’t disclose YSP’s until closing, misleading borrowers to believe that the suddenly apparent dollar amount on the HUD-1 ‘is a fee paid by the Lender to the broker/banker for ‘delivering the borrower’. Under this explanation, payment of Yield Spread Premiums would run afoul of the first step of HUD’s test of whether YSP’s could be considered illegal kickbacks or rebates.

If the dollar value of YSP’s that end up in the broker/bankers pocket exceeds a fair value for services baseline, the transaction violates HUD’s test. What is this baseline amount? I don’t know…$3000, $5000, $10,000+ ? How could one justify $5000 in additional undisclosed compensation?

Charging broker compensation fees up-front and via improperly disclosed YSP can be viewed as a violation of TILA.

Depth.
85-90% of all mortgage transactions contain YSP’s.

In almost all cases, they are never presented as an option, according to true definition.

They represent the largest source of compensation for mortgage brokers.

overwhelming majority of borrowers do not need YSP’s to pay up-front settlement costs but are never offered otherwise.

‘This abusive form of price discrimination substantially increases the overall costs to borrowers, imposing a “hidden tax” on home ownership. Unfortunately, individuals who are less educated and less sophisticated about financial matters end up overpaying the most. The misuse of yield spread premiums affects prime borrowers, FHA borrowers, VA borrowers’**…all the way down the line. Even for those with the best credit, yield spread premiums can cost many thousands of dollars in increased financing costs.

The oft-maligned broker segment of the mortgage origination industry bears the brunt of these facts, while bankers can maneuver with perceived impunity, since they ‘are not required’ to disclose YSP. It would be interesting to see bankers held to black letter law and operate under more transparent conditions…rather it would be interesting to see how quickly they changed their business practices. Many in the industry don’t believe it’s anyone’s business what they make via YSP incentives. Their definition states otherwise. YSP’s belong to the borrower, not the 3rd party service provider.

The mortgage industry as a whole is a baseball toss away from moving to an overall transparent policy platform, via legislation, technology, or both. My $.02 says technology starts it and the legislators play pile on. At the end of the day, to not disclose has been rendered deceptive and predatory…words that have a clearly deleterious effect on doing business, whether they are legally reprimanded or not. If you think about it…to speak out against transparency in this marketplace is not the type of opinion consumers or legislators will come to appreciate.

The opening salvos have begun. There will be momentous battles with new weapons and strategies, but like most wars, no one comes out the clear winner, but the landscape will be changed forever.

**Proper Thanks to:
Kickbacks or Compensation: The Case of Yield Spread Premiums By Howell E. Jackson and Jeremy Berry U.S. Senate Committee on Banking Housing and Urban Affairs.

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Yield Spread Premiums. Definition, Disclosure and Depth