5 Things Mortgage Brokers Don't Want You to Know

Copyright (c) 2008 Nick Kent

Let's face it folks, our country's economy isn't the best it's ever been, and a big part of the problem is the state of our mortgage market. How did it get to be this way? Well, a big part of the problem is that mortgage brokers are not providing all the information consumers need to make a good decision. The bigger problem though, is that we aren't asking them the right questions! No one prepares us for these things, so we can't really be blamed, but it doesn't matter if we're at fault when it comes to our money. Luckily, reading this article will help you figure out what information you need to make an informed decision.

Here are 5 pieces of information to demand of your mortgage broker before signing anything:

1) Yield Spread Premium - This is what the broker gets paid for marking up the rate of the loan above wholesale. The more of a markup, the more they get paid. It's the same concept as a car salesman being paid more based on how much more he's able to convince his customer to pay above sticker, only the salesmen is your broker, and the desk manager is the lender. There's nothing wrong with the broker making a living, but it's perfectly fair to negotiate this figure, to protect your own financial wellbeing.

2) Current Wholesale Rates and Par Pricing - When a broker hears "What are today's rates?" what they're really hearing is "What rate would you like to sell me today?" When you're asking about rate, make sure to be more specific. "What's today's wholesale rate for a 5 year fixed at par pricing?" It's critical to mention par pricing, as that's the actual wholesale rate before any broker markup.

3) Mortgage Loan Disclosure Statement - It's all very well to accept what your being told at face value, but as my father always said, "a verbal contract isn't worth the paper it's printed on." Brokers will be more than happy to offer the consumer a GFE (Good Faith Estimate), but GFEs leave out some valuable information, like the YSP. You're entitled to an MLDS, so make sure you get one.

4) Origination Fee - Make sure to take a look at the origination fee on the MLDS. Despite anything your broker tells you, this money goes directly to the broker's coffers, and is entirely separate from the YSP. Your broker's goal is to make a point in front and one in back. That's ridiculous. In total, a point is reasonable, in a ratio negotiated between the you and the broker.

5) No Fees/No Closing Costs - Nothing else in life is free, why would this be? Do you think the appraiser and underwriter are going to work pro-bono? Between the notary, escrow, title and other various services you'll need, the entire cost will be close to $3000. Obviously, "No Fees" companies make money elsewhere. Elsewhere would be the YSP. Sure, the deal may look great from the front, but the broker's surely making a killing on the back end.

Understanding these 5 key items will help you protect yourself from being taken advantage of. Be aware in advance; most brokers won't like being asked these questions, but what's more important, their friendship, or your financial wellbeing?