Addendum:
Readers, in the column below I made a mistake in discussing yield spread premiums (YSPs). YSPs are, in fact, disclosedon the HUD-1 form and in the 'Good Faith Estimate' (GFE) in the fat pile of papers known as the closing documents. In this weekend's column I will clarify the matter further. I spent some time on the phone with A.W. Pickel,3rd., the 2003-2004 president of the National Association of Mortgage Brokers. Mr. Pickel noted thatin most cases on the HUD-1 form the phrase "yield spread premium" is used but on the GFE, that's whenthings get fuzzy. Several brokers and bankers I interviewed from different states -- including Mr. Pickel -- notedthat the phrase "yield spread premium" does not necessarily get used on the GFE. Several brokers notedthat the YSP language can vary from state to state. "It might be called compensation to broker," saidMr. Pickel. Discussing the GFE, others said the word "broker premium" or "premium" might beused. Many brokers told me they inform their clients what the YSP is for and fully explain it. Others commentedabout rogue brokers who explain nothing to the client. Bottomline: This is a mess of an issue -- Paul
Two years ago when the mortgage business was booming we heard certain anecdotal stories about some loan brokersearning $1 million a year or better. Was this fact or fiction? If you have any information about millionaire brokersdrop me an e-mail at
The reason I ask the millionaire question is tied to yield-spread premiums. Rep. Barney Frank, chairmanof the House Financial Services Committee would like to do away with yield-spread premiums, which has manya broker red with rage. So what exactly is a yield-spread premium? Mortgage professionals — especially brokers— know the answer to that question but I'm not sure Joe Six-pack does. Correct me if I'm wrong but this is howYSPs work: the going rate on a mortgage is, say, 7%. The broker gets a point "upfront." The point isdisclosed on the settlement sheet. Then there's the "back-end" fee or YSP. Even though the broker canget a loan for the customer for 7% he talks the client into a 7.5% loan for example. The client might agree tothis for whatever reason. (Feel free to fill in the blanks.) Because the note rate is 50 basis points higher thanthe going rate the wholesaler rewards the broker for this extra "yield." The broker is rewarded throughthe YSP, which is paid by the wholesaler on the "back-end." This back-end payment is not disclosed onthe settlement sheet and the homebuyer is in the dark. If the YSP was disclosed on the settlement sheet the homebuyermight look at the item and say, "What's this for?" And the broker might answer: "Because I got youa mortgage at a higher rate." I'm not taking sides here but this is how the debate is being framed. Are YSPsright or wrong? Should the payment to the broker be disclosed? One thing seems certain: YSPs are the lifebloodof some brokers. If they go away will brokers and the National Association of Mortgage Brokers disappear?You tell me...
In September, 25,100 full-time positions were eliminated in the mortgage banking and brokerage sectors. Forthe full story see Brian Collins' story on National Mortgage News Online/MortgageWire...
Back in 1990, I co-authored a book on the S&L crisis called "Inside Job, the Looting of America'sSavings and Loans" with two fine reporters named Stephen Pizzo and Mary Fricker. One thingwe discovered during our research was that rogue S&L operators were selling their bad loans to each other,magically making them good again because, well, there was a buyer on the other side of the transaction. These crookedthrift chiefs called the practice, "Trading dead horses for dead cows." On Friday, we learned from publishedreports, that Merrill Lynch — the Wall Street poster child for this crisis — did something that may nothave passed the sniff test. According to The Wall Street Journal: "In one deal,a hedge fund bought $1 billion in commercial paper issued by a Merrill-related entity containing mortgages, a personclose to the situation said. In exchange, the hedge fund had the right to sell back the commercial paper to Merrillitself after one year for a guaranteed minimum return"...
File this under “Someone Smells Opportunity.” NexBank SSB of Dallas is rolling out a new jumbo mortgageproduct for loan sizes $1.5 million to $10 million. The bank says the rollout represents a shift for it becauseit has never focused on residential loans of this size. "As the decline of the lending industry on the nationallevel has negatively affected the real estate market, attractive options for high-end borrowers in Dallas havebeen limited," said NexBank CEO Davis Deadman...
TALES FROM THE LOAN ABUSE FILES: "I know a lot people (they are not my friends) who work for brokershops and they always seem to brag about how much money they make off individual deals. It makes me sick to hearthat they make (total funds to the broker company) $15,000 to $20,000 on a $300,000 mortgage. I have never, evenwhen I worked for brokers in the 90s, ever made more then 2 to 2.5 total points on a deal for the company I workfor. I am ashamed of my industry for all the loan officers that gouge their clients." — E.F. of Rhode Island.Have a loan abuse story? E-mail them in confidence or otherwise to
NO LONGER WITH US: Robert Goulet, the big-voiced baritone and actor best known for his Broadwaydebut in "Camelot" many moons ago. What does this have to do with mortgages? Answer: several years back,as a promotion, Countrywide Home Loans mailed out a very good collection of Christmas songs to the industry,including members of the press. I still have my copy, which includes Goulet singing "Let It Snow"...
IN CASE YOU MISSED IT: GMAC lost $1.6 billion in the third quarter, while Radian Group,an MI firm, lost $726 million. (This must be the largest quarterly loss ever reported by a mortgage insurer.) Radian'sshares traded as low as $9.75 this past week compared to a high of $67...
WASHINGTON NEWS: Fannie Mae and Freddie Mac have the existing capability to buy or securitizeover $125 billion in subprime rescue mortgages without the need for congressional legislation that would (temporarily)increase the caps on their investment portfolios, according to James Lockhart, director of the Officeof Federal Housing Enterprise Oversight.
DATA NOTICE No. 2: Need rankings and profiles on the top residential lenders and servicers? Need hardstatistics on these firms and who their CEOs, servicing and production chiefs are? Need commercial mortgage bankinginformation as well? NMN has just published the new eMortgage Industry Directory, an onlinebook that tracks the nation's top 400 lenders, 300 servicers, top 85 subprime and much, much more. The e-book alsoprovides a special analysis on America's subprime crisis. To order e-mail
