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Type of Mortgage Companies to Start Career as an MLO
This thread is a very important one. A little off topic from what we were covering but extremely important. The mortgage industry is very complex and in many instances, there are situations where it does not make sense. Let’s cover the type of mortgage company you as a newer MLO want to start your career. What I am covering on this thread is 100% truth, transparency, and sometimes difficult to prove but if you have an average IQ, you will figure out what I am saying makes all the sense in the world. Remember one thing, that there is NOT a thing (big or small) in the mortgage industry. There is a lot of money to be made in the mortgage industry, and that is why there are many unethical and not so transparent people in the industry. Here are they type of lenders you will work with:
1. Direct Lender (Full-Eagle Mortgage Banker- uses their warehouse line of credit to fund loans. They originate, process, underwrite, close, and fund government-backed (FHA, VA, USDA) and conventional loans using their warehouse line of credit. After they fund loans, they then package up the loans they fund and group them together and sell it on the secondary mortgage market. The secondary market can be a larger mortgage banker or it can be Fannie Mae and/or Freddie Mac. Usually, a bunch of smaller mortgage bankers will sell the loan their fund to a larger mortgage banker and the larger mortgage banker will sell it directly to Fannie Mae and/or Freddie Mac. With the proceeds the mortgage banker gets from the sale of the funded loans, they will pay down their warehouse line of credit and repeat the process again. That is how mortgage banking works.
2. Mortgage Brokers: Mortgage Brokers are middlemen between a wholesale lender and the consumer. You need to be licensed to be a mortgage broker. Mortgage brokers have limited liability because they do not use their own money (warehouse line of credit) to originate and fund loans. However, mortgage brokers can develop lending partnerships with wholesale lenders. Wholesale mortgage lenders are NOT licensed and cannot originate loans to the public unless they have a retail division that is NMLS licensed. The maximum compensation a mortgage broker can make is 2.75% yield spread premium for the whole mortgage company. For example, if NEXA Lending has a wholesale relationship with United Wholesale Mortgage (UWM), the maximum yield spread premium UWM can compensate NEXA Lending is 275 basis points which is 2.75% of the original mortgage loan amount. Out of the 275 basis points, NEXA then pays out the branch office its share which is 220 basis points, where the branch pays its loan officers from the 220 and pays their bills with the difference. One thing to note is that the higher yield spread premium a mortgage broker or mortgage banker charges, the higher the rate to the borrower. Most mortgage bankers cannot survive with a 2.75% yield spread premium or compensation due to their high overhead. Most direct lenders need to charge 5% to 9% or even higher. Many instances, NEW MLOs think they got a great deal say from CrossCountry Mortgage or New American Funding because they go a 2.5% compensation where the maximum compensation a mortgage broker can offer them is 1.50%. Well, what that means is the mortgage banker is charging a higher rate to the consumer and may even include points. I want to stop this thread here to give you all to digest. This is a very important topic that many experienced MLOs do not know or cannot understand the concept. Please feel free to ask any questions you have. By asking questions, MLO TRAINING e-Learning Bootcamp will be an all-in-one, one-stop mega learning center. Please read the attached guides:
Yield Spread Premium Charged By Mortgage Brokers
Types of Mortgage Lenders and How To Choose The Right One
Difference Between Mortgage Brokers Versus Lenders
gustancho.com
Yield Spread Premium Charged By Mortgage Brokers
The maximum Yield Spread Premium mortgage brokers can make is 2.75% whereas mortgage bankers are exempt and have no cap
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1 Reply
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This is so true on how many people are buffaloed into thinking that direct lenders offer the best lowest rates and terms and mortgage brokers are middlemen so rates are higher when dealing with a mortgage broker and direct lenders often slam brokers to their clients telling them that why would you not want to deal directly with them and save. Bottom line, all mortgage rates start with the par rate. What you see every morning when rates come out are par rates for Conventional Loans, FHA Loans, VA Loans, and USDA Loans. Pricing on PAR RATES is the RAW RATE. PAR RATES are priced for a prime borrower, 740 plus credit score, 20% down payment and/or 80% loan-to-value, single-family home, average debt-to-income ratio, approve/eligible per automated underwriting system, loan limit within agency guidelines, and no yield spread premium (YSP) and/or compensation built into the RAW RATE. THE PAR MORTGAGE RATE is the wholesale RAW, NAKED RATE offered for that time frame. Mortgage rates then gets pricing hits on top of the RAW RATE. For example, pricing hits will be added to the RAW RATE for every layered risk factors the mortgage lender takes. Pricing hits are called Loan-Level Pricing Adjustments (LLPAs). What LLPAs are is a pricing hit for certain credit score bracket, LLPAs on manual underwriting, LLPAs on high debt-to-income ratios, LLPAs on condos, investment homes, and multi-family homes, LLPAs on cash-out refinance, LLPAs for any other potential risk the lender faces. The maximum yield spread premium mortgage brokers can charge is 2.75%. Mortgage bankers and correspondent lenders are exempt from the maximum 2.75% compensation. Mortgage brokers need to disclose the 2.75% yield spread premium BUT mortgage bankers are exempt from disclosing the mortgage lender’s compensation and keep it hidden. I guess the lobbyists of banks and mortgage bankers did a good job lobbying for this where the reason they do not have to disclose the compensation is because mortgage bankers use their own money through their warehouse line of credit and close the loan under their company names. Remember that there is NO such thing as FREE in the mortgage industry. They will nickel and dime you with all junk costs and fees they can get away with it. The bottom line is if you want to give your client the best rate and term on a loan, I suggest you explore going the mortgage broker route. If you want to make tons of money and charge a large commission higher than the 2.75%, going the mortgage banking route is the way. Mortgage brokers have two choices on charging commissions. Borrower paid and Lender Paid. Borrower paid is when you price the loan at par pricing and add a borrower paid commission on top of the par rate (these cases are often done when mortgage brokers want to discount the yield spread premium lower than 275 basis points). Lender paid is when the pricing of the rate already has the 275 basis points YSP compensation BUILT INTO IT.
Lender Versus Borrower Paid Mortgage Transactions
gustancho.com
Lender Versus Borrower Paid Mortgage Transactions
Difference between Lender Versus Borrower Paid Mortgage Transactions is borrower paid is when lender charges lower YSP for better rate
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