MORTGAGE LOAN CHARGES: SOME YOU SEE, SOME YOU DON’T

Understanding Service Release Premiums and Loan Servicing Costs

 

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Knowing the vast differences between the types of mortgage lenders you have to choose from is a topic we discussed in an earlier post (see “The Difference Between Mortgage Brokers and Mortgage Bankers”). In essence, regulations recently put in place by the Dodd-Frank Act put a cap on the amount of money that a mortgage broker can earn on a loan, making Mortgage Brokers your best source for home loan financing.

However, as Rick Piette, owner of Premier Mortgage Lending explains, “We discuss “Visible vs. Invisible Loan Charges” in our Home Loans 101 video at our KnowBeforeYouOweNevada.com site. Yet even when armed with that particular knowledge about limits, it’s still possible that as a borrower – you can receive Loan Estimates from banks or mortgage bankers that don’t clearly define how much money they will make off of your loan.

“So we’d like to help shed a little light on how that happens. To Premier Mortgage Lending, it’s a matter of transparency. We simply believe people should know what they’re paying for – regardless what the product is – and mortgage loans should be no different.”

That is one of the reasons that Premier Mortgage Lending fully supports the goals of the Consumer Financial Protection Bureau (CFPB), specifically as they pertain to mortgage lending. The CFPB’s national “Know Before You Owe” program inspired the local Las Vegas mortgage broker to carry their message even further through the creation of its KnowBeforeYouOweNevada.com site.

How Lenders Earn Money On Your Loan

Lenders aren’t obligated to disclose this, but the fact is most banks and mortgage bankers make money in two ways:

1) First, they make money up front by charging fees.

2) Second, they make money when they sell your loan.

With #1, that’s the “visible” part – the fees that are shown right on your Loan Estimate form. This includes line items for Loan Origination Fee, Underwriting Fees, Document Prep Fees, and so on. It can be the source of literally thousands of dollars of income for a mortgage lender. But these costs can also vary widely from one lender to another, and it’s one of the potentially expensive reasons you should always shop around for the best mortgage loan. Premier Mortgage Lending, by the way, charges none of these fees in our No Fee traditional loans. (See? You just saved money already!)

But with #2, this is where the “invisible” charges enter – and the key terms to remember for these charges are “Mortgage Lender,” “Loan Servicer,” and “Service Release Premium” (SRP). To clarify:

1) Your mortgage lender is the financial institution that loaned you the money;

2) The loan servicer handles the day-to-day tasks of managing your loan (such as processing payments, managing your escrow account, etc.)

3) The Service Release Premium is so called because the lender who wrote the loan releases the right to “service” the loan. These “servicing sales” can generate millions of dollars of additional income to banks and mortgage bankers.

How Does This Puzzle of Confusing Terms Affect You?

“Here’s how it works,” Piette explains.

“A loan servicer buys your loan from a mortgage lender through a Service Release Premium (SRP). Why? Because the servicer will receive future income from the mortgage interest. The higher the interest rate is on the loan, the more they will earn – and the more they are willing to pay the lender for the SRP. The bottom line is, the lender makes more money in Service Release Premiums on loans with higher interest rates, and less money on loans with lower interest rates.”

That is why some lenders want you to pay a higher interest rate for your mortgage loan than you may actually qualify for. Because the higher rate the lender can sell you, the more they receive in SRPs when they sell your loan. “Other than having to compete with other lenders for your business, the lender doesn’t have any incentive to offer you the lowest interest rate,” explains Rick Piette.

Additionally, these lenders will often ‘double-dip’: Charging high fees up front (Loan Origination, etc.) and also collect Service Release Premiums on the back end.

Still with us so far? Because there’s still one more very important thing that every borrower should know:

Mortgage brokers can only receive income that is fully disclosed – complete transparency. They cannot earn additional income by collecting Service Release Premiums. In short, a mortgage broker cannot receive compensation based on the interest rate of a loan.

“These are all key things for you to keep in mind the next time you’re comparing mortgage loan offers,” adds Piette, “because they can all affect the amount of money you pay for your loan. And if we’re not mistaken, there are probably many other things that you’d rather spend your money on – rather than putting it into a lender’s pocket.

Whew. That’s a lot to follow, and we hope we’ve helped to make sense of it all.

“But if you still have questions or would like help comparing apples-to-apples with your mortgage loan offers, give us a call,” states Piette. “We’ll be happy to help – because our only goal is that you get the best deal possible. Even if it’s not with Premier Mortgage, we’ll tell you that, too.”

Premier Mortgage Lending, NMLS #393282, is located at 701 N. Green Valley Pkwy., Suite 125, Henderson, 89074. The full-service lender is a member of the Las Vegas and Boulder City Chamber of Commerce, Better Business Bureau and Southern Nevada Home Builders Association, as well as an affiliate member of the Greater Las Vegas Association of Realtors.

Premier Mortgage Wants Buyers To “Know Before You Owe Nevada”

Jim Pic 5Home Loans 101 Help You Shop For The Right Mortgage

Say you’re out shopping for a new refrigerator. You’ve had your eye on one for awhile. You know – the one with the big French doors, the climate-controlled drawers, and maybe it can even be connected to your ‘smart’ home and send you a text message when you’re out of milk. As much as you love that refrigerator, do you simply hand over your credit card without asking how much it’s going to cost you? Of course not.

Surprisingly, though, that’s pretty much what people do with a mortgage for their new home. Their builder or Realtor refers them to a lender – either for a pre-qualification letter or to make a full loan application – and then, well – that’s all she wrote.

“Unfortunately, that’s also when homebuyers end up paying much more money than they should – because not all mortgage loans are the same,” according to Rick Piette of Premier Mortgage Lending. “If they knew there were other options, and were prepared with the right questions to ask potential lenders when they shop for a loan, homebuyers would save literally thousands of dollars. That’s money they’d probably enjoy spending more on new furniture, or maybe even a trip to Hawaii.

“The problem is, if you don’t know you can ask, you certainly won’t know what to ask. That’s why we created our KnowBeforeYouOweNevada.com website. It’s designed to make it easy to learn how to compare loans, know which questions to ask, and help you make the best financial decision for your specific home buying situation.”

Following the economic turmoil of recent years, the Consumer Financial Protection Bureau (cfpb.gov) was formed, and one reason was to help buyers understand the vast differences in mortgage loans between banks, mortgage banks, and mortgage brokers.

The CFPB states that their new mortgage rules will make the market safer and easier to understand. CFPB Director Richard Cordray said in a statement, “Shopping for a mortgage can translate into big dollars saved in the long run. We want to enable consumers to be more savvy shoppers.” Premier Mortgage Lending is glad that it’s bringing a new level of transparency to the mortgage industry.

Piette goes on to add, “Many aren’t aware that the new legislation directly affects mortgage brokers. As a mortgage broker, Premier Mortgage Lending has legal limits about how much we can charge for a loan, and borrowers are fully aware of “all” the revenue a broker earns. So what we’ve chosen to do is pass those savings along to the consumer – which is why we’re able to offer a true “No Fee Mortgage Loan” to homebuyers.

“A No Fee Mortgage means exactly what it says. When buyers gather and compare Fee Worksheets from multiple lenders, there are some things they won’t typically find on a Premier loan – like fees. Those line items for Loan Origination, Underwriting, or Document Prep Fees will all show a nice, big $0 – because we don’t charge for those things on our traditional loans at all. And that’s where homebuyers can save big.”

Premier Mortgage, together with the CFPB, is on a mission to help consumers understand all of their mortgage loan options. With their brief “Home Loans 101” videos at KnowBeforeYouOweNevada.com, buyers can easily become more informed about how to shop for a new mortgage loan (perhaps even better than for a new refrigerator!).

As Rick Piette is happy to note, “When it comes to mortgage loans, the power of choice is back in the hands of the consumer. We think that’s a very, very good thing. And so does the Consumer Financial Protection Bureau.”

Premier Mortgage Lending, NMLS #393282, is located at 701 N Green Valley Pkwy. #125 Henderson, NV 89074. The full-service lender is a member of the Las Vegas and Boulder City Chamber of Commerce, Better Business Bureau and Southern Nevada Home Builders Association, as well as an affiliate member of the Greater Las Vegas Association of Realtors.

With Another Chance Nevada, Renting Is Not Your Only Option

Jim Pic 1Is Your Home Buying “Waiting Period” Over?

Short sale. Foreclosure, Pre-foreclosure. Deed in Lieu. Since the collapse of the housing market in 2008, it’s estimated over 7.3 million homeowners experienced one of those unfortunate circumstances affecting their homes. And it’s a pretty safe bet that if you didn’t go through one yourself, you have friends or family that did.

An unpleasant turn of events? Absolutely. But in truth, those terms used to be a lot scarier before the economic crisis took place. For most of us, the years between then and now have been tough. Not only did we lose a part of our identity, legal waiting periods as to when we were able to get another FHA, VA, or Conventional mortgage loan kept us from finding a way to get back on track.

Adding insult to injury, since then rents in the U.S. have risen at alarming rates – now literally at twice the cost of inflation. Multi-family construction is now at a 27-year high, and in some markets (including Las Vegas), statistics show that renting can actually cost twice as much as owning a home.

“But there is good news for consumers,” according to Rick Piette, owner of Premier Mortgage Lending, “and it’s news that many aren’t aware of yet. All that has begun to change. As time has gone by, those short sale and foreclosure waiting periods are coming to an end, which means families who may have feared a home of their own was out of reach are discovering that’s no longer the case.”

“Even better, though, is that with programs like Premier Mortgage Loan’s Another Chance Nevada, homebuyers don’t need to wait on those restrictions at all – they can buy a home as little as one day after a short sale or foreclosure. As a non-traditional financing alternative, Another Chance Nevada is not burdened with those waiting periods, which offers an attractive alternative to renting,” reveals Piette.

Piette goes on to explain, “With our private lending program, there may be a higher interest rate and fees to initially get back into their own home. However, it’s important to note that none of our loans contain pre-payment penalties, which means you still have the ability to refinance to more favorable terms in the future. With interest rates still low for traditional loans, though, even those additional costs make good financial sense.”

“The likelihood is that this type of private money loan will not only cost less than renting – but you are investing in yourself (instead of a landlord), and you’ll get to enjoy all the financial and emotional benefits that accompany homeownership.”

Premier Mortgage Lending created Another Chance Nevada to offer buyers better options and to take part in keeping the Las Vegas economy keep moving in the right direction. After helping hundreds of buyers in Southern Nevada get back into their own home again with this program, Piette is gratified to know that it’s really making a difference.

One such customer was happy to offer this description of their experience: “Premier Mortgage gave us the opportunity to own a home again immediately after having to short sale our old home. Through their 2nd Chance Loan Program we were able to turn a negative situation into a positive one.”

“Is it time to begin shopping for a home of your own again?,” asks Piette. “All signs indicate that it is. The timing is perfect, home sales are climbing, yet interest rates are still low. And because many consumers thought they weren’t qualified to buy a home yet, they’re not aware of the financing options they have. We’re trying to change that with Another Chance Nevada – and it’s really working.”

Premier Mortgage Lending, NMLS #393282, is located at 701 N Green Valley Pkwy. #125 Henderson, NV 89074. The full-service lender is a member of the Las Vegas and Boulder City Chamber of Commerce, Better Business Bureau and Southern Nevada Home Builders Association, as well as an affiliate member of the Greater Las Vegas Association of Realtors.

The Difference Between Mortgage Brokers and Mortgage Bankers

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They’re two different animals – mortgage brokers and mortgage bankers. And if you don’t know the difference between them, it’s something that can end up costing you a lot of money, unnecessarily.

The truth is – not every mortgage lender is created equal. As with any business – you want to work with a reputable company that provides good service. You’re also likely to do a little online research to see what previous customers have to say about their experiences. (If there’s one thing consumers aren’t shy about, it’s letting the world know – in a very public way – how they felt about their transaction.)

“But the problem is,” according to Rick Piette, owner of Premier Mortgage Lending, “is that once you’ve gone that far, you’ve already missed the most important step: Deciding which is the right choice to begin with.”

So let’s get back to the basics with a little apples-to-apples comparison of how a Mortgage Broker compares to a Mortgage Banker.”

How a Mortgage Broker Works

1) The key advantage of a mortgage broker is that borrowers complete a single loan application – and with that information, the broker has the ability to shop with numerous banks and lenders simultaneously to find the lowest interest rate and/or the best loan program that can be structured to suit your financial goals. It’s one-stop shopping that works for you.

2) New Federal Regulations in the mortgage industry (that went into effect in 2014) – place restrictions on the amount a mortgage broker can earn on your loan. What that means to the buyer is this: A broker can now make you a true No Fee Mortgage. (Not all of them choose to do this, but Premier Mortgage Lending is one that does.)

3) Brokers are typically small, locally owned companies – consisting of people you know as part of your community, They live, work and are invested in your town – just like you. They have a low operating overhead, and with a mortgage broker, only two people will make money on your loan: The Loan Officer and the Owner.

How a Mortgage Banker Works

1) Typically, mortgage bankers are ‘direct lenders’ who offer loan programs and services from a single bank. This limits the borrower’s ability to see all the loan options available for his circumstances – unless he wants to make multiple loan applications with various banks or mortgage bankers – a task that only takes up your time and resources.

2) With new legislation passed through the Dodd-Frank Act that became law in 2014 – neither banks nor mortgage bankers are subject to earning limits on a mortgage loan. As a result, ‘invisible charges’ and ‘undisclosed income’ generates additional income for the lender that buyers may not even be aware of (but they may pay for it in the form of higher rates or higher fees).

3) Mortgage banks (and banks) are large operations with layers of low, middle and upper management. Every one of whom receives income from making your mortgage loan. So everybody gets a piece – including the Loan Officer, his Manager, District Manager, Assistant Vice President, Vice President, Sr. Vice President, and right on up the line.

What’s important to buyers is that they should be looking to find the best deal for their loan:  the one that costs them the least amount of money, either out of pocket or over the loan duration. To get there, we’d like to remind you of one very important point: A “No Fee Mortgage” from Premier Mortgage Lending is exactly that.

Unlike some loan offers that seem too good to be true (see our article entitled “Getting A Credit Towards Closing Fees”? What That Really Means.” for more information on that) – this loan product represents itself clearly : Borrowers are charged $0 for Loan Origination, Underwriting, Document Prep, or other ‘junk fees.’ And unlike mortgage bankers, the laws that govern mortgage brokers require all of our fees to be fully disclosed and visible on your Loan Estimate. (No hidden or invisible costs here.)

So when you request an initial Fee Sheet from multiple lenders, be sure to take a close look at those line items on the form. Because if they say more than $0 – you may be paying too much. Sometimes, thousands of dollars more than you need to – to get the exact same mortgage loan.

Still have questions? Rick Piette will be happy to answer them, and even if you plan to shop other lenders (which we always encourage our customers to do) – he’ll help you to understand the differences and know which questions to ask. Putting the power of choice about your mortgage loan back in your hands – it’s our mission. Visit KnowBeforeYouOweNevada.com to learn more.

Premier Mortgage Lending, NMLS #393282, is located at 701 N. Green Valley Pkwy., Suite 125, Henderson, 89074. The full-service lender is a member of the Las Vegas and Boulder City Chamber of Commerce, Better Business Bureau and Southern Nevada Home Builders Association, as well as an affiliate member of the Greater Las Vegas Association of Realtors.