Profit Banks Hide from Borrowers

[Account Closed]

Service Release Premium (SRP)/ Overage

Profit Banks Hide from Borrowers

"Service Release Premium" (SRP) or "Overage" is profit that banks make when they sell a Borrower's loan to a servicing company post closing. Amazingly, banks are legally allowed to hide this profit, never having to disclose it to consumers.

Banks make money off the interest rate of the loan they sell to borrowers, but because they close the loan in their name on the closing documents, the government doesn't require them to disclose the SRP/ Overage to the borrower. This hidden profit is often much more than a broker would receive if they sold the same higher rate loan to borrowers.

Mortgage brokers have been disclosing their compensation from lenders called Yield Spread Premium" (YSP) for years on the Good Faith Estimate. But, because loans do not actually close in the actual broker's name on the closing statement, unlike Banks, the government requires brokers to show this amount added to the total origination charge section on the new Good Faith Estimate.

However, this amount is then shown as Credit to the Borrower simultaneously reducing the amount back down in the Adjusted Origination Charge making it a wash. Confusing? Yes, but this is exactly what the Banks want!

The reason for this all this numbers shell game? Banks are counting on the confusion of consumers and inaccurate perception to paint a rosier picture of banks over the Mortgage Broker, when in reality, bottom line it's the Mortgage Broker who can offer the consumer the better deal.

For years banks have relentlessly worked through their Washington influence and lobbyists to create this 'tilted playing field' allowing their SRP/ Overage profit to be hidden from the consumers. Unfortunately, after all the housing melt down banks helped to create through their unlicensed loan representatives, they've once again been given a Wink and a Nod by the government and have succeeded with the very confusing New Good Faith Estimate.

But unlike banks, who rely on confusion and government assistance to help them try to monopolize lending by eliminating their competition, Mortgage Brokers originate millions of mortgage loans in America by offering consumers better service, lower rates and/or costs, better terms and more options through multiple wholesale lending sources.

This makes Mortgage Brokers the #1 obstacle standing in the way of banks reaching their goal of complete control of the American mortgage market, choosing who can, and who can't get a loan and what rate and terms consumers will be forced to pay. Just as OPEC controls the cost of oil in the Middle East, unless banks are kept in check, they'll one day totally control America's mortgage industry in the same way!

[Bill Gulley]

Steve, I noticed you are "blogging" in the forums, there isn't a question posed which is what the forums here are for. Check out the BP blogs. :)

As to the SRP, I'd disagree with your thinking as to hiding anything really. The SRP is in the interest, usually a .25-.375%. It's also a post closing activity, disclosures are required for all pre-closing activities as those effect the consumer. What any lender does after closing isn't a direct expense to any consumer.

I understand your thinking promoting broker's services. But I'd stick with apples and apples or not infer that pre and post mortgage activities are all consumer matters.

Banks do not make money on the interest of a note after the note is sold.

Selling servicing rights and retaining the note they do earn the interest.

As a broker, I sold with a SRP as well. All you need to do is fund at the table and close in your name. You'll obtain better pricing too.

In my brokerage arena, bank relationships were important, we originated for smaller banks, that is probably not done today with independent brokers, granted. There are relationships where a broker can charge a borrower and simply place the loan or refer to customer to a bank loan officer. The fees were disclosed in these transactions decades ago under RESPA anyway, it's also an ethical matter. Additionally, some of my largest and best loans were referred to me by banks. For awhile, we originated and closed with servicing released jumbo loans for a regional bank, the tables can be turned.

Sounds too like you're suffering a bit like banks did when mortgage brokers hit the streets in the late 70's and 80's into the 90's. Banks have compliance issues and overhead that brokers totally avoided not being an insured institution. The tables have certainly turned, disclosure of fees is a small part of putting brokers in similar compliance requirements with other lenders.

There's an old saying, "if you can't lick'em, join'em."

The problem is that brokers are having difficulty in adapting to disclosure requirements from a marketing aspect. I never advanced my services by slamming the competition, implying the competition as evil or pulling unethical dealings when those actions are perfectly legal and accepted practice is unprofessional. Brokers and institutional lenders are all in the same profession of originating mortgages. :)