Daily Kos on HR 3915: Mortgage Industry Set To
by: Brian.Brady on November 15, 2007 11:03:26 1 comment »
The Daily Kos, the self-proclaimed "liberal blog network" published an article today by author "Kagro X" about HR 3915, the Anti-Consumer Mortgage Bill ,working its way to Chairman Chris Dodd's committee in the Senate. Bloodhound contributor Jim Duncan made me aware of this lie:
My understanding of mortgage banking is minimal. There are a few others here (and here) and around the blogosphere who understand this much better than I do. But this I get: the mortgage industry lobby is winning in its fight to turn around strong legislation that would have prohibited the payment of "yield spread premiums" to mortgage brokers.
That would have saved a lot of you a lot of money.
This one is going to be easy. His first sentence qualifies his conclusion. Yield Spread Premium is a tool used by originators TO save consumers money...on their non-recurring closing costs (settlement costs if you're from the East Coast). Yield Spread premium is reverse points. Instead of paying an upfront cost for a lower rate (and payment), a consumer can voluntarily take a higher rate and receive a credit towards the closing costs. Let me explain for the Kos-heads:
A mortgage originator is going to charge a fee for her services; that's how she feeds her kids, pays her taxes, and puts a roof over her head. Let's assume that that fee is 1% of the $200,000 loan. That loan will have third-party costs associated with it (appraisal, credit report, lender fees, escrow/sttorney, title insurance, et al). Let's assume that those fees add up to another $2,000. The cost of securing that loan, then, is $4,000.
A Daily Kos-head could walk into the Bank of America, in Phoenix, and ask for a "no-point" loan; all third-party closing costs to be paid by the borrower. You'll see that Bank of America, a paragon of virtue, will offer a consumer a rate of 6.625%. The consumer gets that rate for a cost of $2,000. As a federally-chartered bank, however, they don't disclose yield spread premium to the borrower; it's a "secret".
Your friendly neighborhood mortgage broker is working for $2,000. She places your loan with Flagstar Bank, who offers her a yield spread premium of 2% (or $4,000) for a rate of 6.5%. She, secures you a lower rate than the Bank of America and takes $2,000 (for her children's child care expenses, the rent, the electric bill, etc.) and credits you, the borrower, with the remaining $2,000. She can't "match" the rate from BofA because it offers 2.3% in yield spread premium; rebating you money (above the actual loan costs) would be loan fraud. In this case, she has to give you a better rate while saving you $2,000 in closing costs, all because of the "evil" yield spread premium.
Now, I'm a fair guy. If you want to compare apples to apples, you'll say that you want to pay all of your third-party costs, like the Bank of America quote, let Flagstar bank pay your loan originator her $2,000, and enjoy an even lower rate. That's simple. Your loan originator needs to find a rate, from Flagstar Banks, that pays her 1% of the loan amount. Today, that rate would be 6.25%. The savings between the Bank of America example and the mortgage broker's offering, using the evil yield spread premium, is about $63/month.
The flesh-eaters aren't the ones receiving yield spread premium, it's the banks paying your hero, Barney Frank.
Call me the next time you need a mortgage. Liberals hate the way I write but love the way I save them money on their mortgages. While I'm a member of the Vast Right Wing Conspiracy, some of my best clients voted for Howard Dean.
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· http://www.floridamortgagedaily.comI think it is funny that this guy, and others like him are posting today. I felt the need to do a post on YSP this morning at my own blog and how it is beneficial to the consumer. As always, I like how you put it, as you are much more "opinionated" than I get. What is even more cool is that your opinion is based on reality and fact, not the crap fed to the public.
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