The entire real estate market is greatly misunderstood by a huge amount of people. I watched the morning news this week and of course they continue to spin the same old line of Fannie Mae and Freddie Mac are in trouble and the banks are not lending. Here is Los Angles there is a group of people that all belong to a church and they claim that they are going to boycott the local banks in their city that will not make new home loans to them and/or will not modify their existing loans. I find this odd that these people clearly do not understand how the system works. Or there is the disturbing possibility that they clearly understand and they are using public pressure in an attempt to try to make something happen?
As those of you know that follow this blog I have recently begun doing residential mortgages after a lot of pressure from the readers. Now with that said I am deeply troubled with the lack of understanding by the consumer. So is it a lack of explaining of the process by loan officers or an unwillingness to learn by the consumer? With such a large purchase I would think that anyone getting into such a transaction would want to understand, maybe that is just me.
So let’s look at a home mortgage, is there any difference between a bank loan officer and a broker loan officer? The answer is no in regards to the loan that you will get. Yes one works for a bank, we all can see the obvious. The broker loan officer is independent which comes with more required regulations such as, a DRE license and a MNLS license. Today I have not heard of any banks requiring this licensing of their loan officers. I was offered a loan officer position with a large bank in Orange County and the salary & benefits were good I have to say. I did not take the job because I was required to give up my DRE license which I found troubling. So are bank loan officer’s lessened?
Some banks have renamed their loan officers to “mortgage bankers” but they are the same thing. The resent financial reform law has also made it possible for banks to hide fees and stretch the truth. For example, many bank loan officers make claims like “our ARP is the same as the note rate.” So what does that mean? Well the note is the note period. This is the rate you will pay for your mortgage. The APR is the formula that is used to determine the true cost of your loan. ARP or annul percentage rate is a horrible name for this as it has nothing to do with your note rate.
A broker’s APR is higher than the note rate is because the Financial Reform Bill now requires that a broker include the YSP in the ARP calculation. So what is YSP? YSP is yield spread premium. When a bank sells the mortgage note on the bond market or the Fannie or Freddie they get paid what is called SRP and the higher the note rate the higher the SRP. SRP is Service Release Premium. YSP is a percentage of the estimated SRP so why is SRP not required to be calculated into the ARP formula? Have the boys in DC unknowingly positioned the banks themselves to be predatory Lenders?
The public needs to understand that banks do not hold the notes to the majority of the loan that they do. There is more money in selling the mortgage notes and servicing the note when compared to the risk. So why does the Media not tell you about this? Well I have no idea other than to get you to watch what they are selling. Better yet why don’t you as a home owner learn more about the loan process that you are signing your name to. The current economic situation is horrible and there are no easy answers or quick fixes. I come to only on conclusion, we are all dependant upon each other so what can you do to help the situation?