Foundations of the Mortgage Industry (Part II)

There are two markets that structure the mortgage industry.

1. The primary market:  Where loans are originated.  This consists of Brokers, Mortgage Loan Officers, Banks, Credit Unions and Thrifts.
2. The secondary market:  Where loans are sold.  This consists of Fannie Mae (FNMA), Freddie Mac (FHLMC), Ginnie Mae (GNMA), Wall Street, and wholesale line of credit accounts.  Interesting to note, FHA, VA, and USDA are in neither market. 

When a consumer is in the market for a home loan, there are several pricing terms that if known and understood, can really be advantages to getting the best deal.  These terms are as follows.

• Service Release Premium (SRP):  This is paid to Lenders for loans made above the par interest rate.  This functions as a way for the borrower to reduce their cash to close or settlement costs.
• Yield Spread Premium (YSP):  This is paid to brokers for loans made above the par interest rate.  Also functions as a way to reduce the borrower’s cash to close or settlement costs.
• Discount Points:  Paid by borrowers as a way to permanently reduce the interest rate below par.  This is only worth doing for a long-term approach.  I caution borrowers to calculate your return on investment (ROI) before purchasing discount points.  The fact is that most consumers only have their home loan for five to seven years before they either sell or refinance their home. If this happens, they might not ever get a return on that money.
• Origination Fee:  A fee charged for originating the loan.  This fee is commonly an aggregate of several fees added into one, and could be viewed as the “labor” for originating the loan.
• Broker Fee (aka finder’s fee):  Fee charged to the borrower for arranging and finding a lender.  Want to save some money?  Hint, cut out the middle man by doing your own shopping.
• Loan Level Price Adjustments:  Also known as “bumps,” it is the change in interest rate or pricing based on the riskiness of the loan.  Ultimately, any loan with a loan to value (LTV) greater than 80% will be subject to risk based pricing adjustments.  Other factors may include: the term of the loan, if the subject property is an investment property or a primary residence, if the borrower chooses to waive escrows, etc.

Not sure who to call or where to start?  Contact me today for a 100% free no-obligation loan inquiry analysis.

Matt Pell,  Loan Officer
Mortgage Warehouse, LLC
(239) 672-8502 – Direct Line
(239) 344-9223 – Fax
Matt@mortgagewarehouse.com
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Company NMLS ID – 137154
Individual NMLS ID – 1018529
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