Well as many of you know I have begun doing residential mortgages and I have been surprised. Based upon the questions in regards to how a home mortgage works has been alarming. I will try over the next few days to answer the most common questions in regards to a new home mortgage, loan modification and short sell / foreclosure options that are ahead of some people.
Episode One – Bank or a Broker
Most people do not realize that banks do not hold most of the loans that they originate just like a mortgage broker. If a bank holds a loan then it is called a portfolio loan which has different guidelines than Fannie Mae or Freddie Mac loan. Fannie Mae and Freddie Mac were created to expand the secondary market for US home mortgages. Fannie & Freddie purchase most of the loans today from our banks and then sell bulk packaged loans back to us. Well back to us in terms of our investments via our 401Ks. This is why when you call the bank they can not help you with your loan modification but that is a subject for another episode.
So step one, where do you get your mortgage? From a Broker or a Bank Loan Officer? Well there is little difference today. You know going in that the Broker L/O is going to sell your loan. What most people do not realize is that the Bank L/O is going to do the same thing. Where we get confused is we make our payments to the Bank that we did the loan with. What we do not understand is the Bank where we send our money is only the loan service provider?
The loan service provider gets paid a small fee and processes the payment for the note holder and then forwards on the bulk of the payment to the note holder. So the Bank L/O is not any different than a Broker L/O. The only difference is this, for example when you go into a bank in America they will offer you a rate and tell you the A.P.R. is the same and that sounds great! Or does it? We the A.P.R. is only the price for the loan and it not rate. A.P.R. is a horrible name and has nothing to do with you note rate. I will get into this more later. The bad thing for the consumer is banks offer retail rates. Brokers offer wholesale rates.
If any Bank L/O quotes you a rate ask them to factor in the S.R.P., service release premium, as see what happens. The Feds in DC have set up the banks as predatory Lenders in my opinion which I will get into later and expands on my early A.P.R. posting. There are always fees in every loan. If you think that you are getting a loan with no fees snap out of it. The L/O up sold the rate to cover the fees. You do not work for free and neither do the banks.
So the point of Episode One is this, there is not difference between a Broker L/O and a Bank L/O based upon the above example other than a retail rate or a wholesale rate. The above example is the bulk of all loans done today under the loan amount of $729,000. Based upon the resent mortgage refi/modification show at the LA convention center this past week I will cover why most people do not get refinance help today in Episode Two.