Saturday, May 06, 2006

Mortgage Shenanigans

Do you have a mortgage? Did you get the best deal possible? Ever hear of "yield spread premiums"? According to some sources as many as 85 to 90 percent of all transactions include YSPs. Remarkably, these kickbacks are buried off-column on the HUD settlement statement and are often completely overlooked by the borrower. The short story is that these YSPs are bonuses paid to your mortgage broker by the lender for charging you a higher rate than you qualify for. If you got your mortgage directly from the lender, the YSP doesn't even have to be disclosed on the HUD. Check your HUD around lines 809 to 811 and look for cryptic notes with numbers. Those numbers you find there are probably money you paid your mortgage broker that came unknowingly from your own pocket. In 2002 the average amount per transaction was around $1850.00 and is probably higher now. Here's a good read on yield spread premiums.

This is not the only shenanigan I've witnessed but it seems to be one of the most widespread and least understood. Your good faith estimate will probably not disclose this premium. Tell your broker that you will not accept any YSP on the HUD, UNLESS it is known by you and being used in lieu of other upfront mortgage costs to offset your total closing costs.

Here is the section of the HUD where you will find the hidden gems. Not in the "paid from borrower's funds at settlement" column, but off-column to the left.

801. Loan Origination Fee %
802. Loan Discount %
803. Appraisal Fee to
804. Credit Report to
805. Lender’s Inspection Fee
806. Mortgage Insurance Application Fee to
807. Assumption Fee
808. Mortgage Broker Fee
809. -------------------somewhere
810. ------------------in this area is
811. ------------------where it will appear

Knowledge is power.