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October 16, 2009
How Are Mortgage Brokers Paid?
i assume it's standard for borrower to pay a fee upfront....what about a percentage of the points you purchase to lower interest rate? what else will the borrower expect to pay to the mortgage broker? thanks.
Comments
During the closing, they will remove 1 quart of blood for every $100,000 borrowed. Be sure to bring your own orange juice. If they have to supply it, it costs .5 points.
Posted by: slick at October 16, 2009 4:04 AM
Our broker was paid by the bank, but we are paying for it through our mortgage. Ask your broker how they get paid, if your broker is part of a firm that rights a lot of business (think The Manhattan Mortgage Company or Ditech), they have more bargaining power and can get more concessions from banks, and even with their fees you may do better than you would on your own or with a smaller broker. If you're dealing with a smaller broker or applying directly to a bank, you don't have the same bargaining power and may end up paying more, but if you're using a smaller bank that knows you, you may be able to do something other than a vanilla mortgage.
Posted by: bohuma at October 16, 2009 6:52 AM
I used Manhattan Mortgage and I was able to get something like 1.5 points off if I was willing to pay the fee to MM. I happily paid fee which lowered my overall debt by over $250k.
As with anything it can go many ways. You pay, the bank does, one costs more, one costs less. Talk to a few brokers and see what each says and go with who you are most comfortable.
Posted by: christopher at October 16, 2009 9:07 AM
Very good slick I thought I was the only one to consider real estate brokers blood sucking vampires. Does anyone feel sorry for their bad situation now? Renters are no longer paying brokers to find places to live. Their blood supply is running very low.
Posted by: hannible at October 16, 2009 9:58 AM
Hannible, You do understand the difference between a MORTGAGE Broker and a REAL ESTATE Broker, right?
Posted by: newsouthsloper at October 16, 2009 10:19 AM
Slick -- hilarious!
You pay an origination fee to the broker, usually 1 pt or so. I negotiated for the sellers to pay for all my closing costs, so didn't worry too much about what the broker charged. I got a great rate, and it was the seller's problem to pay all the usurious fees.
Posted by: brooklynstyle at October 16, 2009 12:44 PM
The only difference btwn bank and broker compensation is that you see what a broker makes and you don't with the bank. I have acted as both a broker and a banker. It's the same thing regarding rates and fees.
Higher rates have more of a Premium or YSP (yield spread premium) case in point.
5% base price of 100.00
5.125% base price of 100.25
5.25% base price of 100.625
5.375% base price of 100.975
5.5% base price of 101.125
The above is just an example. So at 5% the broker or banker is not making any money/commission. They would probably offer you that 5% rate at a cost of 1pt to the client as that rate is not offering any yield or premium.
Same client can elect to take the 5.375% which nets that broker/banker 100.975 or .975% of the loan amount.
Different loan scenarios have different adjustments to rate. These adjustments are added up and affect the rate you get. Great example is the adjustment for a multi fam which is 1pt. You can choose to pay the 1pt and buy out the adjustment or have it built into the loan usually resulting in a higher rate of about .25%-.375% higher.
So the above rate schedule on a 2 unit property would be.
5% base price of 100.00 - 1 = 99
5.125% base price of 100.25 - 1 = 99.25
5.25% base price of 100.625 - 1 = 99.625
5.375% base price of 100.975 - 1 = 99.975
5.5% base price of 101.125 - = 100.125
So in order for the broker/bank to offer the client these rates they would need to charge 2pts to get to 5% or 1pt to get to 5.375%
I've worked for banks and they get paid the same as brokers for marking up the interest rates, you just don't see how much they make as opposed to brokers who need to show you.
The below link is the Loan Level Price Adjustment Matrix so you can see all the negative and positive adjustments to the price of the loan.
https://www.efanniemae.com/sf/refmaterials/llpa/pdf/llpamatrix.pdf
adamdahill AT gmail.com
Posted by: Adam Dahill at October 16, 2009 2:06 PM
I'm using Universal Mortgage for a refi. They have to give you a good faith estimate and an explanation of how they get paid. Application fee I pay to broker is $395 then there's a $600 underwriting fee (similar to what I'd pay if applying directly to the lender). The rest of what I'm paying goes to other people (appraisal, title company, title insurance, recording fee, mortgage tax). Broker can also get paid by the lender (up to some %, but it doesn't matter to me because I'm paying it). I called the bank directly and their rate would be higher - I get the "wholesale" rate via the broker.
My advice (whether using a broker or going direct to lender) is don't pay points. Discount points are just a way for lender to in effect lend you less money (because you're paying some of it back in points) and quote a lower rate, though they have to tell you the higher APR that takes it into account. Unless you know you're going to keep the home and the loan (never refinance) you're usually better off with no points.
Posted by: Bklnite at October 16, 2009 2:29 PM
Of course newsouthsloper I know the difference between a MORTGAGE Broker and a REAL ESTATE Broker the Mortgage Broker is like your local drug dealer that gives you drugs on credit the Real estate broker is the one that steals your money from your pocket while you are going to pay off your local drug dealer. Our society will be much better when all 4 catagories are behind bars.
Posted by: hannible at October 16, 2009 10:17 PM
I was skeptical too. But as many of the other commenters have already explained, no matter how they are getting paid-- it can be worth it. I shopped hard for a rate when I bought my house in March 2007. I checked with many local and national banks, USAA (which serves as a sort of military credit union), and some of the national mortgage companies like Ditech. And the best rate I got from all of them was from a Mortgage Broker. It's 5.75%-- over 25 bps below the next best rate I was quoted, and a full 75 basis points below MY everyday bank, HSBC, which tried to convince me that the "extra service" was worth the extra 3/4 of a point. (3/4 extra point for 30 years-- what are they going to do, give me a massage everyday? Pick up my mortgage payments in a limousine. Please!)
Bottom line-- I got the lowest rate, no points, no prepayment penalty -- all through a mortgage broker. I say, "don't count them out". The mortgage was actually through Citimortgage. I never saw any extra charge. I assume, as some of the others have pointed out, that the bank paid the fee.
mike z
Posted by: mikez at October 18, 2009 12:39 AM
thanks to all the helpful peeps out there....
Posted by: jdlcnm at October 18, 2009 6:09 PM
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