Carmine

Desperate times call for desperate measures. And although I rarely suggest this, it just might be the 'Silver Bullet' that the homeowner needs to save their home.

The No Fee Home Loan or No Fee Mortgage or No Closing Cost Loan . It can be called many things, but they are all the same thing. And don't let anyone tell you that it is a 'special in-house program only'. These have been around forever. Let me tell you how it works. But first, some facts: Fees are real. People have to get paid on a home loan. No one 'waives' fees. They simply charge those fees a different way. Ken Cook wrote a nice piece about The Truth About "No Closing Cost" Loans. A good reference for more info on this subject. Ever see those commercials on TV that say 'NO CLOSING COSTS'?!?!?! Well, there may very well be no closing costs on the settlement statement, but the borrower will pay those costs over and over again through higher interest payments. Somebody lied.

When a loan officer originates a mortgage, they can offer their clients any rate they wish, really. By that, I mean that they can offer a competitive interest rate based on their costs of that rate. Or, that loan officer can mark up the rate and earn a commission from the investor for the extra interest that will be earned on the loan. This bonus is called Yield Spread Premium(YSP). So, if a borrower qualifies for 6.5% rate, the loan officer can charge 6.75% and earn an additional 1% of the loan amount in commissions(pricing varies and commissions earned varies for each .25% increment). Well, not all loan officers work for just that 1% origination fee, so this is very normal. Brokers do it. Banks do it. Don't let anyone tell you that they offer the best rate..... they do not.

But, how can we look at this in a positive way. Let me put an interest rate of say 7.25% on the loan. I now have earned almost 3.5% of the loan amount in extra commissions. That extra commission can be used to pay the customers fees in the event that they cannot come up with the money. 3.5% of $200,000 = $7K. MORE than enough to cover all of the borrower's closing costs.

Problem solved? Not yet..... it is NOW TIME to make sure the client gets into a fixed rate. No need to try and do this over and over.

While this little 'Silver Bullet' works for a lot of folks..... there will be borrowers still too far upside down on their home. The property must appraise for the loan amount!!!

This is an example of a positive way to use YSP to the benefit of the borrower. And just might help save someone's home.

Tom Burris
DallasLoanGuy.com
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