A reputable and professional Florida mortgage broker does earn and discloses to the homeowner or home buyer a “yield spread premium” from the Lender by offering a specific interest rate. In fact, banks earn the same premium when they sell their bundled mortgages on the secondary market.  Lets use the FNMA, Fannie Mae, conventional 30 year fixed rate mortgtage as an example to fairly compare mortgage brokers and mortgage bankers or lenders.

Of course, we will assume that the mortgage broker professional and banker are not charging discount points and origination fees.  Today’s 30 year fixed interest rate is available at an average interest rate of 6.375%; however, for the mortgage broker to earn a commission or yield spread premium, the rate is quoted slightly higher.  We would offer 6.625% which in turn will yield a profit of approximately 1.500% of the loan amount.  If the loan amount were $200,000, the premium earned would be $3,000.

You would think then that a direct lender or bank would offer a lower interest rate because there is no mortgage broker; right?  The truth is banks offer the same competitive interest rates, 6.625%.  The only difference is the bank doesn’t ever have to disclose the yield spread premium they will earn when they sell your loan on the secondary market.  It exists and you never see it on any disclosure. 

I wouldn’t have a problem with reporters saying that mortgage brokers charge higher rates; if banks actually offered lower ones.  We compete with the same rates as banks all the time.  The difference between banks and mortgage brokers is disclosure of the yield spread premium and banks are limited in mortgage program opportunities.  We, mortgage brokers have to show and do explain how we get paid and banks don’t.  Is it fair?  I don’t think so..

We need to keep it fair and everyone should be responsible to disclose how it really works regarding mortgage broker or banker financing and the yield spread premium we all earn.

Stephen Thaggard, FAMB, NAMB

Trackback URI |