What I’ve read is that we will be changing the way we price our loans for our income as mortgage originators. Typically, a mortgage person will collect a 1% origination fee for the transaction. I stopped doing that a few years back as I just don’t like percentage based lending. I do the same amount of work for a $70,000 loan as I do a $700,000. I believe that like every other business model of profit, it should be based on the amount of work you do and not the size of the transaction. That’s what it sounds like the government wants as well.
The second law change deals with Yield Spread Premium (YSP) for Mortgage Brokers and Service Release Premiums (SRP) for Mortgage Bankers. YSP or SRP is an amount of money that a bank pays to the originator for bringing the loan to them. (I guess you could call it a bounty.) They can pay it in percentages or they can pay it in what’s called basis points (BPS). It’s been around for years, whether you’re dealing with a mortgage broker, a mortgage banker, a bank, a credit union, an auto loan, YSP or SRP is in the mix. It is money a person could make on the back end of the loan and not tell the client…a way to make extra income. The Government wants that practice to go away. The law says that a lender can either make their money on the front from the client, called origination or on the back through a YSP or SRP.
When I first got into the business, I was taught to price my loans with a 1% origination and a 1% YSP on the back. I was told the average income of a mortgage loan should be $4,400 of transaction but I always felt that that was too high. I am known as the flat fee broker and have received some negative critiques from my industry because of that.
However, with the financial reform that will be coming in April you will see brokers joining me instead of criticizing. They will have to either get their income on the front from the client as a flat fee or on the back as a premium from the bank. Again, I’m pretty happy because I started this two years ago and am glad to be ahead of the curve.
What are your questions regarding the coming financial reforms?
Honored as one of the 2010 Best Mortgage Brokers in Dallas! for D Magazine. Ranked 25th in 2009 production in the category Largest North Texas Residential Mortgage Lenders, according to the Dallas Business Journal!
Geoffrey is the “Frisco Mortgage Guy”!
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