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Secret Methods To Drive Up The Cost Of Your Home Purchase Or Refinance

How Do You Know if the Loan Officer is Jacking up Your Interest Rate?

It bears repeating that it is the loan officer who picks the interest rate he is going to sell you and, consequently, the commissions he will earn on the loan. If he is competing with another loan company to get your loan, he may not be greedy and not jack up the rate. But if you don't shop around, don't trust him to be honest. Some loan officers are completely up-front with you, but some aren't. Always shop around, especially if you have "A" credit. Some loan officers will charge you less if they know your loan will be a piece of cake to put through the system.

Take extra caution if you have less than stellar credit and must get a non-conforming loan, as these are typically the biggest target of shady loan officers. Desperate people have been known to have swallowed higher interest rates and 5 points in fees. This definitely is gouging.

costs are profitable

There are an enormous amount of fees associated with doing a loan. Most of them are fees that the loan officer and mortgage company cannot control, and are a part of every loan. In the case of the rest of the loan fees, the loan officer is in complete control of how much they will make off of a loan. Unfortunately, the typical consumer is unaware of these costs because they are hidden (legally so) in the loan paperwork and closing documents. However, laws are in the process of being drafted to correct this outright thievery.

In order to understand how a mortgage company makes money on a loan, you first need to understand which of these costs are profitable for the mortgage company.

Fees Which Profit the Mortgage Company

The following fees determine the profit on the loan. They are completely under the control of the loan officer or mortgage broker. There is no standard for these fees; the unscrupulous loan officer will try and make as much as possible from you with these fees. After being in the loan business, I watched loan officers gouging their clients every day. It is a rampant, common occurrence. Most loan officers are not paid a salary, they are paid through commissions from every loan they originate that closes. This puts the pressure on them to make as much money as possible, wherever possible. Loan officers typically split the profits (usually 50/50) for each loan with the company for which they work. Therefore, every dollar they can squeeze out of you is 50 cents into their pocket. To originate a loan, the loan officer merely gets a client to fill out a loan application.

Getting Points on the Back

Also known as "yield-spread fees", points on the back are one of the ways a loan officer makes more funds available to the total loan "kitty." It is essentially a "kick-back" from the mortgage bank the loan officer is buying the loan from, earned by selling a customer a loan at an interest rate that is above the going rate.

Each day, loan officers receive rates from banks for all of their loan programs. Listed for each program is the "par interest rate." The par interest rate is the interest rate at which the broker does not have to pay a fee to "buy" the loan and then sell it to you, nor does he receive a commission for selling you the loan at this rate. You might say that the par rate is "loan equilibrium." Table 3 shows an example of the types of rates a bank might publish to their subscribing mortgage companies every day.