That's right, mortgage brokers need to make a living too. People seem to conveniently forget or disregard this when coming to me for services. I usually have more problems with hard-headed domineering women that run the show in relationships. Most of them think they know how the rebate or negative points works on a loan when they truly don't. And because they are so hard-headed to understand, they end-up not using my services. They seem to think that a rebate on a loan is the same thing as a mail-in rebate from Circuit City. Simply put, 90% of these types of clients think the rebate should go directly into their pocket instead of mine.

What they can never grasp is how those rebate points are the only means to make a living as a mortgage broker besides origination which is hardly charged unless absolutely required (at least with non-******** brokers). The only frequent ways origination (cost in fractions of a point –or- whole point(s)) is charged is when rates are too poor and there's barley any rebate to be made for the amount of work being done, or when your client wants a very low rate for that given market which has little to zero rebate to begin with.

So I’m going to teach those of you that don't understand how our money is made with a simple example loan. It'll help you understand and better negotiate with a mortgage broker should you ever deal with one.

Here's the simple example loan assuming this client has perfect credit, perfect assets, and a current rate of 6.500%: Rate and Term Refinance (No-Cash Out - Client just wants a lower rate), Appraised Value of $400,000, Loan amount of $300,000 which equals 75%LTV/CLTV. Client wants a 7/1 ARM with Interest Only Option and Impounds. Simple enough...

I look at a snippet from one of my wholesale rate sheets:



Before I begin let’s make sure everyone knows a point is 1% of the loan amount.

Reading the rate sheet is simple. You have the rates, lock periods, costs, and rebates (rebates are in parentheses & the costs are not) at the top. Then at the bottom you have Pricing Adjusters that depend on the particular loan scenario.

I quote him a rate that he's comfortable with and that I’m comfortable with regarding the rebate I’ll be earning as a cost of business. Therefore, I quote one that's significantly lower than the rate he currently has (6.500%) at 5.875% for a 30 day lock period (must close within 30days). If you look at the rate sheet the rebate on that rate is (1.125) negative points. Meaning that the broker will be grossing $3375.00 off the deal for selling such a rate for the wholesale lender he/she happens to be using ($300,000 x (1.125) = that).

BUT there's a pricing hit for being an interest only option. If you look at the bottom portion I already circled it's a .250+ hit. So it's really only a (.875) rebate, you see? So... that equals $2625.00 gross for the broker. Not too great because of all the fees the broker has to pay out of his pocket at the end of the loan but still a significant chunk of change.

So how would an example for origination work in a deal?

Well assuming we use the same rate sheet; say the client wants a rate at 5.00% (NON Interest Only) with a lock period of 30days. As you can see that rate has a 1.750 cost without any hits. What you may not know is that cost is NOT what I am charging to make my living. That cost is what the lender/bank is charging for that rate. So in order for me to make money I’d charge you say ~1.0% origination. So if the loan amount is still $300,000 the cost for that rate to the client would be $8250 ($5250 + $3000) out of pocket, or added to the loan amount. May or may not be worth it depending how long the client intends to keep the loan.

Hope this explains it somewhat...

Getting these types of clients makes me want to fill a grocery basket full of items and negotiate the price or not pay at all at the checkout line. Better yet, can you imagine the look on a dentist's face if you demanded him pay you for that multi-thousand dollar new smile? If you think about it that’s exactly what these clients are asking me to do.

 

We need to create a new business forum for you and others in these industries.

sh!te, I would love to learn stock tips!

 

Guess that's what happens whe you are one of the only honest brokers in the industry.

Thanks again for the loan... loving it.

 

does everyone know what 7/1 ARMs are and all that?

 

That's good to know

 

Simply put, the 7 means the length in years the loan is locked at a fixed rate. The 1 (year) means how often the rate can adjust after the initial rate period ends. 3/1, 5/1, 7/1 and even 10/1's are just another type of ARM tied to particular index. Most all of them have the option to be amortized on an interest only scale (the 10/1 not so much unless you find a program for it). Most all are amortized over a 30yr schedule.

 

haha i should start a post

How "Hackers" make their living 101

haha