I do believe there shouldn’t exist a financial incentive for Mortgage Brokers to steer borrowers into more costly mortgage loans like the Option ARM mortgage.  However, this should not be confused with Mortgage Brokers receiving a Yield Spread Premium from lenders.  Remember Yield Spread Premiums (YSP) for Mortgage Brokers are similar to Service Release Premiums (SRP) for large Banks.  The only real difference is that large banks are not required to disclose their SRP earned income on each Florida home loan. 

When shopping for your new Florida home mortgage you might notice that banks, lenders and mortgage companies advertise different 30 year fixed rates.  In the mortgage industry banks and Florida mortgage brokers calculate their fixed rates by determining what profit they expect to earn from selling the servicing rights to an end investor. 

If an interest rate of 6.125% pays the mortgage company a YSP of say 1.25% of the loan amount; then the borrower may enjoy this rate without having to pay discount points or origination fees.  If someone is providing a comparative fixed rate of 5.75%, then you might want to compare the buy-down costs.  Banks and Lenders advertise lower rates but wait may wait until writing a Good Faith Estimate to reveal the additional buy-down costs.  By the way, I believe buying down the interest rate with discount points should be the home buyers option; not the bank or lenders requirement.  But every mortgage company and bank is different.

If Mortgage Brokers are doing an injustice by increasing a borrowers qualifying rate to earn a living; then why are bank interest rates and costs not any lower?  Stop and look at the real big picture. 

One more thought on costly mortgages.  The notorious Option ARM with it’s negative amortization, prepayment penalties and recasting in 5 years or less; pays Yield Spread or Service Release Premiums differently.  Higher fixed margins deliver higher premiums to banks or mortgage brokers.  These fixed margins are whats added to the adjusting Index to calculate the real interest rate on any given day.  Consumers never ask about this detail and mortgage professionals should provide upfront.  Most Florida homeowners would never consider this type of mortgage loan; but when someone is selling a small mortgage payment of only 1% and not disclosing advantages or more importantly, the disadvantages; homeowners will lose. 

It does pay to speak to a professional Mortgage Broker who has experience with many mortgage program types and who delivers upfront consumer information; all of it.

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