According to the Justice & Integrity Project in its newest home lending survey, overcharging the homeowner and or out right fraud have reached epic proportions in the U.S. mortgage markets. The net result is that mortgage lenders and or those who purchase mortgage portfolio’s may be at risk for tens of billions of dollars in liability for fraud or for the intentional overcharging of tens of millions of U.S. homeowners.
According to the survey, the number one culprit in lender overcharging is a mortgage fee called a “Yield Spread Premium”. A “yield spread premium” is a term for a fee that is paid as a kick-back to mortgage brokers for increasing the borrowers interest rate over the best rate the consumer could have received at time of the closing of the home loan. While mortgage brokers must disclose these hidden fees, mortgage bankers and or banks have no such requirement. What is astonishing about the bank/mortgage banker exemption from yield spread premium disclosure to the consumer is the fact banks/mortgage bankers like mortgage brokers get these kick backs too-they simply are not required to disclose them.
Of the over 1000 homeowners polled, less that 3% realized that the mortgage broker had received a yield spread premium/extra compensation on their mortgage transaction. Put another way, if a yield spread kick-back is received by the mortgage broker, the homeowner is now paying a higher monthly mortgage payment. The survey also discovered that far less than half of all homeowners receive the federally mandated Good Faith Estimate and or Truth in Lending Agreement within three business days of the homeowner making application for a home loan. In the instance of mortgage brokers; a yield spread is supposed to be disclosed on the Good Faith Estimate; but according to the survey results, it is disclosed less than 1% of the time. To make matters worse, the yield spread premium kick-back is rarely disclosed on a HUD-1 Settlement Statement as a “Yield Spread Premium”, rather it is disclosed as a “POC Broker Comp” or something else as confusing to the consumer. The vast majority of consumers surveyed indicated that if they had known the broker was receiving this additional compensation that resulted in a higher monthly mortgage payment…they would not have gone through with the mortgage transaction with the broker. Again, for some unknown reason banks and mortgage bankers are not required to disclose their yield spread premium kickback to the homeowner even though they receivce them too. Many to most banks or mortgage bankers simply give the consumer a higher interest rate and pocket the extra profits with no disclosure. In this example the consumer gets a higher monthly mortgage payment and never knew it happened.
With respect to Yield Spread’s, the survey concluded that lack of meaningful or understandable disclosure of the yield spread could mean tens of millions of individual law suits asserting the claim that the borrower never knew about the yield spread premium or kick-back for increasing the borrowers interest rate/monthly mortgage payment.In some states, this can get expensive because the borrower may be entitled to the difference between the rate that the homeowner deserved versus the rate the homeowner received multiplied by 360 payments.
As an example, a borrower received a 6.50% interest rate versus a 6.0% rate they could have received from the broker & the broker received his or her kick-back (perhaps thousands of extra dollars). The difference in the monthly payment was $100. The unaware borrower/possible victim may be able to sue for $100 X 360 in this example (the number of payments in a 30 year mortgage) and actually win. In this case, the recovery would be $36,000 plus potential legal/court costs. While no one affilitated with this survey is a lawyer, and while this is not an attempt to practice law/render a legal opinion, there may be case law to support tens of millions of individual yield spread lawsuits on the part of homeowners; especially in light of the fact that over 90% of consumers never even knew what yield spreads were or what they did to their monthly mortgage payment.
HUD’s various statements on the topic are at best contradictory,unclear and very confusing. One thing that HUD has been clear about is that yield spread premiums must be disclosed to the borrower (unless you are lucky enough to be a bank or mortgage banker). The survey discovered yield spreads are not disclosed because 97% of the homeowners surveyed never knew what a yield spread was/what the yield spread meant to their monthly mortgage payment. Up until this point the mortgage industry has tried to explain away yield spreads as a fee the broker gets from the mortgage banker/bank so that the consumer does not have to pay for the costs associated with the mortgage out of their pocket/home equity. In fact, in the vast majority of cases we observed the broker was paid twice, once for their standard origination and other fee’s and at the same time they were paid a yield spread premium kick-back for increasing the borrowers interst rate with little or no disclosure, or a disclosure that could be described as impossible for almost any consumer to understand. As a footnote…many in the mortgage industry refer to “yield Spread Premiums” as “back-ending” or “back loading” the borrower/the deal. Even banks and mortgage bankers use these terms…they simply are not required to disclose the “back-ending” to the uninformed U.S. consumer.
The survey also discovered junk mortgage fees and or needless and or duplicative mortgage fees are on the rise. According to the survey typical junk mortgage fees are “loan application fee’s”, “document prep fees”, “loan discount fees” (with no discount),”funding fees”,”Table funding fees” and or “appraisal review fee’s”. In the strongest terms possible, the survey/study suggests that the Department of Housing & Urban Development should level the playing field for consumers and inact an immeadiate requirement that banks and mortgage bankers be required to show yield spread premiums on all HUD-1 Settlement statements & Good Faith Estimates, (as do mortgage brokers) along with a new requirement for a simple form signed by the borrower explaining the extra compensation from a yield spread to a broker, mortgage banker or a bank along with what this fee will do to a borrowers monthly mortgage payment. The study also suggests a $25,000 fine per occurance for duplicate or upcharged mortgage fees or poorly disclosed yield spread premiums as a way to deter this type of activity and or provide for additional consumer protection in the home mortgage process.
While the forgoing is a biblical type disaster for the mortgage industry that may rival or exceed the S & L Crisis of the 1980’s, the other situation discovered may turn out to be just as bad. This newest survey/study contacted appraisers mortgage brokers & real estate agents nationwide on the topic of phony real estate appraisals and or appraisals that over-estimate a homes value. The results were startling. According to nationwide interviews of appraisers, mortgage brokers and real estate agents, 15%+ of all real estate appraisals puff up or overstate the value of a home.
According to those polled, the mortgage lender or the real estate agent calls the appraiser and says “I need a certain value on this home”. (regardless if the homes value is in fact anywhere close to the desired value)If the appraiser refuses to do the phony/puffed up appraisal, the real estate agent or mortgage lender will simply find another real estate appraiser who wants the money for the appraisal, regardless if the appraisal is based on fact or in many cases fiction. The transalation on all of this is simple. This nations real estate markets may all have over-stated value. This suggestion is based on the fact that if a home’s value was founded on false or inaccurate comparable home values, all appraisals and or notions of value might be impacted.
Members of the media are encouraged to contact local real estate appraisers, mortgage lenders and or real estate agents to verify our real estate valuation findings. It goes without saying that a real estate market that is not worth what it says it is worth puts at risk nearly every type of citizen, homeowner, financial institution and or pension fund in this nation. Once again this begs the question…where was the Department of Housing & Urban Development when all of this was/is happening? As for members of the U.S. House or U. S. Senate Banking Committee’s…the question may be…How do they protect 75 million U.S. Homeowners when their biggest campaign contributers are the mortgage or banking industries?