Profit Banks Hide from Borrowers

13 Replies

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!

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. :)

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

You are wrong and you know it!

I too have worked where we had access to SRP (Service Release Premium) and you know good and well that's why so many Broker Shops strive to become Correspondent Lenders and Mortgage Lenders to obtain Warehouse Lines, so just like Banks, they too can make more and hide what they are making on the Back End (.i.e. SRP/ higher rate rebate) as well as make money on the front end in origination / points.

This is also why Wholesalers are coming out with these Mini-Warehouse Lines for the smaller Broker Shops, so they to can get on the SRP bandwagon!

So you can try to dress it up and put as much lipstick on this SRP pig as you want, but it's still a pig and everyone in the industry knows this to be true.

Furthermore, I'm not promoting myself, I'm simply sharing what I know to be FACT!

However, being new here, I'm learning as to where I can post and what is allowed.

This post has been removed.

@Steve McRory,

I agree with you on what you are saying is true. The banks are very good at hiding things from the consumers.

Joe Gore

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This post has been removed.

But to be completely honest, would I like to have access to SRP? Yes!

Would I be able to make more money? Yes

Has the Dodd Frank Act, with its absurd rules about Brokers only being able to make money on the Front End ...or... only thru Lender Comp. (i.e. rate compensation) hurt Millions of borrowers that could benefit from Brokers being able to adjust Compensation to fit the situation? Yes!

All I'm doing here is sharing the facts about Mortgage Industry Compensation.

Originally posted by @Joe Gore:
@Steve McRory,

Just overlook all the smart remarks. I like to know what is a

idiot.

Joe Gore

Joe, here in the U.S. "idiot" is used to describe one with serious mental deficiencies, being mentally challenged compared to the norm, "norm" meaning "average".

You have no idea of the amount of restraint required in giving that description for you. Have a great day. :)

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

Originally posted by @Steve McRory :
But to be completely honest, would I like to have access to SRP? Yes!

Would I be able to make more money? Yes

Has the Dodd Frank Act, with its absurd rules about Brokers only being able to make money on the Front End ...or... only thru Lender Comp. (i.e. rate compensation) hurt Millions of borrowers that could benefit from Brokers being able to adjust Compensation to fit the situation? Yes!

All I'm doing here is sharing the facts about Mortgage Industry Compensation.

I agree with much of that, the millions hurt may well be off set by the tens of millions saved from unscrupulous mortgage brokers.

When there are bad folks in any industry, the hand of government often comes down harder than those in the industry see as being fair minded.

Did you know Steve, that there was a time, not long ago, that the entire state of Florida was barred from secondary market originations by brokers due to the massive fraud issues, wholesalers simply banded doing business with any broker, blackballed!

Let me ask, another example:

Current rates go down, a lender made a higher rate loan six months ago at a higher rate. That lender decides to sell that loan. Is that lender messing over the borrower if the lender can sell the note at a premium, for more than is owing on the note?

That is a post closing business transaction, just as selling the servicing rights. :)

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

Let's keep this to the facts.

Do not use "attacking statements" even if they are tongue in cheek meant to be kidding.

Steve the forums are meant for questions and answers with discussion. They are not meant for writing articles as that is the function of the blog feature on here.

Let's all keep it civil or the topic will be just removed all together.

Medium allworldrealtyJoel Owens, All World Realty | [email protected] | 678‑779‑2798 | http://www.AWcommercial.com | Podcast Guest on Show #47

As a borrow I can honestly say I don't really care why the bank does after they fund my loan. When I borrow money I look at the rate and the payment, does the loan make sense for what I am doing? If the bank doesn't make money somewhere they will stop making loans. Profit is a good thing.

Bob E. MBA, LD Funding, LLC | [email protected] | 909‑353‑3863 | http://www.LDFundingLLC.com

Bob,

That's a very fair statement, bottom line, who offers the best rate and lowest costs is what matters.

The reason for this post (which I'm new here on this site and understand this should have been posted as a blog) is to make Consumers aware of what really goes on behind the scenes in lending.

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