Can a mortgage broker make more of a commission from a "sub-prime loan" versus a "conventional" loan?
Posted by admin | Under Conventional Mortgage Monday Nov 17, 2008
I understand that from a sub-prime loan a broker can make more of a commission from a "yield spread". Is it possible for a "conventional" loan to have a yield spread as well?
I think that brokers were motivated to sell sub-prime loan since they made more money on their commission from a "yield spread". Is it possible for a "conventional" loan to have a yield spread as well?
I think they make the same amount either way. I do hope they have or will stop giving out those sub-prime loans.
i don't know the answer to that though it is a good question. i believe they get paid a commission based on the amount of the loan and not they type of loan. so think it's the same but i'm not totally sure. but didn't they get rid of subprime loans?
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I think they make the same amount either way. I do hope they have or will stop giving out those sub-prime loans.
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I am pretty sure the reason the sub prime loan crisis happened was because brokers were given incentives to sell them. That is probably not the case anymore though.
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From what I understand it really doesn't matter what the program is for what they are getting paid. Most lenders have caps on what the broker can get paid. For example, say there is a high origination fee on the loan, most lenders pay a yield spread to the brokers on the back end of the loan, this is the lenders payment to the broker for bringing them your business and this does not come out of your pocket, but they will not pay a high ysp if the origination fee is high. Most lenders cut broker fees at 5% of the loan amount, I believe, depending on the lender. Most lenders have cut their sub prime lending altogether, and ones that do offer it, the rates are very high. The broker should be going sub prime only if they have exhausted all other options for you. Most broker's won't over charge on the front end (loan origination fee) as they are concerned about being beat by another broker, plus, if the file is clean and easy to complete, they can usually rely on the lender paying a decent back end fee.
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7 years mortgage industry experience
I would say that used to be the case. Most conforming or government lenders would cap what a broker could make between origination and yield spread at between 3.5 and 5%.
Sub-prime lenders used to let brokers charge he the state maximum. In Ohio, that was like 7.99% before the loan was considered "high cost" which triggered additional disclosure requirements and could draw the scrutiny of regulators for predatory lending.
In practice, the market governs what anyone can make on any loan. If you over price your loan, someone will undercut you almost everytime. I always tried to make a certain amount on each loan without respect to the type of loan it was.
You always try to find the best terms for each borrowers situation, but a lot of brokers did not have access to the FHA programs tha might have been better suited for some people that ended up with sub-prime loans.
I hope that answers the question for you.
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7 years mortgage lending experience.