Archive for May, 2008
Realonomics: RateSpeed…Inching Us Toward Transparency
May 14th, 2008 Categories: The News
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Agent Genius: What if Consumers Had Full Access to…
May 14th, 2008 Categories: The News
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Inman News: Mortgage pricing tool, RateSpeed‚, goes live…
May 14th, 2008 Categories: The News
A new mortgage pricing tool, RateSpeed.com, went live this week promising to show consumers wholesale rates and yield spread premiums lenders pay to mortgage brokers‚without asking for their personal information.
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RateSpeed, The Automated Transparent Anonymous Mortgage Rate Pricing Widget
May 13th, 2008 Categories: General
“In a time of universal deceit, telling the truth is a revolutionary act.”-George OrwellWhen it launches in May of 2008, RateSpeed‚ will give consumers their first glimpse at wholesale mortgage rate and pricing information without broker/banker manipulation. The information will be free; the application anonymous.
Why would a mortgage pro want anything to do with this?
RateSpeed‚ is based on a proven, robust, real-time mortgage data exchange platform. It will be offered as a widget mortgage professionals can embed on their own websites so professionals and businesses may maintain 100% of their brand identity. Using the 12 most common credit and financial risk factors that influence mortgage rates, RateSpeed‚ will Search a broker/banker‚ personal wholesale lender database and return the most favorably priced loan programs, automatically. Think of RateSpeed as a front end pre qualification Underwriting Engine.
Give consumers what they want, easy access to accurate mortgage rates without having to directly engage you…and you don’t have to waste time selling yourself to a guarded consumer before you can get enough information to do the same, only manually. Follow up with the exclsuive leads RateSpeed provides via validated email, credit and financial data as well as the specific pricing results they’ve already received from your wholesale lenders.
The efficiency RateSpeed stands to bring your business allows you to establish a logical fixed fee for services, based on loan criteria, consumer and process needs. The fee a mortgage professional chooses to set is entirely their choice. As consumers understand that rates change daily, sometimes twice, compensation shouldn’t change, as it often can due to inefficiencies within the current mortgage Matrix.
RateSpeed is scalable to accommodate any individual broker or bankers existing wholesale lender relationships personal pricing feeds. The application offers unlimited consumer ‘pricing pulls’, no ‘cost per use’ fee structure.
Why would consumers want anything to do with this?
Real Rates In Real Time. Imagine calling a mortgage professional and anonymously giving them the infomation they need to accurately quote you an interest rate, and having them disclose exactly how much in cash rebate that accepting a higher rate qualifies you to receive. Imagine the mortgage professional doing this in 15 seconds. Dream with me cause dreams come true. Want to check wholesale rates from your local mortgage professional everyday, twice, five times per day? Have at it. Watch the market in real time.
We hope RateSpeed‚ spawns a national network of transparent mortgage professionals who not only disclose true par rates (the rates the banks actually approve you for), but offer flat-fee loan services as well. Under this model, consumers can expect a fixed-fee negotiated up-front that never changes, determined not by the amount of the loan, but the level of service required to close it. 100% of Yield Spread Premiums are disclosed and credited towards a borrowers closing costs, as is their black letter law intent.
To qualify as a RateSpeed‚ affiliate, a mortgage professional must apply for a license, which will require a cursory level background check and abide by its terms of use, which will include adoption of a transparent flat-fee model like the one described above.
Built out by a mortgage industry veteran and acclaimed pioneer in the transparency movement, RateSpeed is designed to be the most robust application of it’s kind. The XBroker is partnering with a nationally acclaimed mortgage technology platform so professionals and consumers may access the largest and most reputable selection of lenders and programs in todays market.
Don’t settle for someone else’s watered down version of a mortgage transparency widget.
There is only one RateSpeedTM‚Real Rates in Real Time. Transparency in its truest form.
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Yield Spread Premium. A Consumers Option to Finance Mortgage Closing Costs for Accepting a Higher Interest Rate
May 2nd, 2008 Categories: General
Originally Posted on The XBroker November 9, 2006
Yield Spread Premium. A Consumers Option to Finance Mortgage Closing Costs for Accepting a Higher Interest Rate.
Yield Spread Premiums (YSP’s) have gradually made their way into the American homeowners conscious, rising from relative obscurity.
While this is progress, their use in relation to their intent is still misunderstood, manipulated, and maligned. Although more consumers are now aware that YSP‚ are cash rebates Lenders pay for a borrower to accept a higher interest rate than they qualify for‚this hasn‚t stopped Brokers and Bankers from misusing them as a tool to subjectively and unjustly enrich themselves.
Definition.
Even well educated broker/bankers can‚t properly define YSP‚ intended purpose per RESPA letter law. As explained in the RESPA Policy Statement, yield spread premiums should be proposed “as a valuable option that permits home buyers to pay some or all of the up front settlement costs over the life of the mortgage through a higher interest rate.‚
In reality, YSP’s are shrouded within the complex structure of real estate settlement procedures to principally allow mortgage brokers and bankers the ability to impose higher prices on borrowers for their direct benefit.
Disclosure.
Many broker/bankers will disclose YSP’s in a range of fashions, which may appear to protect the borrower, but appearances are deceiving. A prevailing practice among brokers is to enter a range of 0% to 5%, which leaves the broker with complete freedom of action, while providing the borrower with no usable information.
Other brokers won’t disclose YSP’s until closing, misleading borrowers to believe that the suddenly apparent dollar amount on the HUD-1 ‚is a fee paid by the Lender to the broker/banker for ‘delivering the borrower’. Under this explanation, payment of Yield Spread Premiums would run afoul of the first step of HUD’s test of whether YSP’s could be considered illegal kickbacks or rebates.
If the dollar value of YSP‚ that end up in the broker/bankers pocket exceeds a fair value for services baseline, the transaction violates HUD‚ test. What is this baseline amount? I don‚t know‚$3000, $5000, $10,000+ ? How could one justify $5000 in additional undisclosed compensation?
Charging broker compensation fees up-front and via improperly disclosed YSP can be viewed as a violation of TILA.
Depth.
85-90% of all mortgage transactions contain YSP‚.
In almost all cases, they are never presented as an option, according to true definition.
They represent the largest source of compensation for mortgage brokers.
overwhelming majority of borrowers do not need YSP‚ to pay up-front settlement costs but are never offered otherwise.
‘This abusive form of price discrimination substantially increases the overall costs to borrowers, imposing a “hidden tax” on home ownership. Unfortunately, individuals who are less educated and less sophisticated about financial matters end up overpaying the most. The misuse of yield spread premiums affects prime borrowers, FHA borrowers, VA borrowers’**…all the way down the line. Even for those with the best credit, yield spread premiums can cost many thousands of dollars in increased financing costs.
The oft-maligned broker segment of the mortgage origination industry bears the brunt of these facts, while bankers can maneuver with perceived impunity, since they ‚are not required‚ to disclose YSP. It would be interesting to see bankers held to black letter law and operate under more transparent conditions‚rather it would be interesting to see how quickly they changed their business practices. Many in the industry don‚t believe it‚ anyone‚ business what they make via YSP incentives. Their definition states otherwise. YSP‚ belong to the borrower, not the 3rd party service provider.
The mortgage industry as a whole is a baseball toss away from moving to an overall transparent policy platform, via legislation, technology, or both. My $.02 says technology starts it and the legislators play pile on. At the end of the day, to not disclose has been rendered deceptive and predatory‚words that have a clearly deleterious effect on doing business, whether they are legally reprimanded or not. If you think about it…to speak out against transparency in this marketplace is not the type of opinion consumers or legislators will come to appreciate.
The opening salvos have begun. There will be momentous battles with new weapons and strategies, but like most wars, no one comes out the clear winner, but the landscape will be changed forever.
**Proper Thanks to:
Kickbacks or Compensation: The Case of Yield Spread Premiums By Howell E. Jackson and Jeremy Berry U.S. Senate Committee on Banking Housing and Urban Affairs.
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The Effect of Transparency on the Mortgage and Real Estate Industry’s
May 2nd, 2008 Categories: General
Originally posted on The XBroker November 7, 2006
Few people like to entertain the guy who trashes their business model as antiquated, especially those within the industry who currently enjoy a comfortable margin of success doing business under the self-prescribed ‘right way’.
So, let me simply say that I am here to help, not just pee in your Cheerios. Maybe I’m guilty of a little too much self-promotion, but you can’t get mad at the kid who tries to answer the tough questions, whether invited or not, and offers a solution for everyone else to openly poke holes in/at/through.
‘Disintermediation’ is an act of progressive business practices that are more debated by the day in this ‘underground’ real estate related community. As these industry’s move towards the path of greater transparency, outsourcing for less expensive products and labor is becoming a required task more than an option or debatable topic. Globalization hit the mortgage service industries a few years ago, if you hadn’t noticed. Anyone can outsource file processing (from Indiana to India) at far less expense than employing an in-house processor, with less errors 
This is only the tip of the iceberg, the risk (or opportunity) is far greater.
Much like the traditional stock broker middleman, the mortgage broker/banker and real estate professional middleman is a species who is facing a slaughtering wave of attrition, and for very similar reasons. The mortgage bubble has popped, and as the market scales from historical demand back into some balance with supply, only the strong and/or adoptive will survive…specifically…those who can do more for less, in less time. In the case of the mortgage industry, new and inexpensive technology is mandating transparency and forcing disintermediation from traditional ways. Instead of looking over the entire landscape, many within the industry refuse to look further than past what they can currently see.
Too often I hear comments like:
‘No piece of technology is going to replace me!’, ‘I’ve been very successful for years, why would I change?’ ‘It’s not practical to do business like you suggest’, ‘My customers love the way I do business’, ‘People don’t mind paying my fee.’
The internet has only been around for apprx 11 years, it is still in it’s infancy. There were plenty of people 10 years ago that dismissed Information Technology in a similar fashion, and PC cynics before them.
The demographic that has grown up online is just now entering the mortgage marketplace. They don’t value the traditional relationship as much as information. It, not you, is recognized as the most valuable resource. If they can get around you on the cheap, they will, and someone will be there to sell it to them for less than you’re capable of. Think of it this way, fathom doing business without the net and still being as efficient and effective as you are today? Impossible.
Dot com era businesses (and their plans) blew up at the introduction of transparency into it’s inflated numbers and projections. Company’s with P/E ratios and other fundamental baseline measurements that made 0 economic sense imploded.
The stock brokers who were making huge rips under cloak were exposed and marginalized or eliminated from the industry. I got along great with my stock broker, that didn’t mean I felt obligated to pay him 2-3 times the amount I now pay to buy and sell my securities. I found a way to do it faster and cheaper. His job and fees were marginalized to the point he joined the mortgage industry. Now he’s looking at me like, ‘What’s next?’.
Quid pro-quo; What is the benefit of changing how you do business now? Market share, and alot of it. However, early adoption of disruptive technologies that promote transparency and as a result, increased loan volume, requires disintermediation from current mortgage broker labor compensation models and business processes.
The new mortgage market consumer will demand more efficient, less expensive, point and click, intuitive interfaces to gain their business. If your cost per loan acquisition is $1,200+, you have a shelf life of about 1 year. Insist on continuing to charge points instead of a fixed fee for (multiple) services? Get relegated to fighting for ‘whats left’. Own or working for a brokerage that pays some type of 30%-70% split? You’re pricing yourself out of competition.
Seth Godin postulates that integration of new technologies, business ideas, products, and paradigms generally move into general usage/acceptance along a traditional bell curve, which seems more than reasonable to believe.
Lets put the transparent, efficient, cost effective, and intuitive mortgage business model into the curve as a whole, assuming that what I have laid out becomes remotely true.
Where will you or your Company be in this curve? Among the late majority, or cynical laggards who die a slow death or play perpetual catch-up?…or among the innovators and early adopters who are positioned to capture significant market share….a market that is primed for a huge correction, the beginning of which we are just now seeing.
The e-myth demonstrates that a business owner, and thats all of us in mortgage services nowadays, must work on his/her business, not in it, to become successful. The Innovators Dilemma discusses the dangers of getting too comfortable in your current success model, and why the big traditional players in the market fail to innovate, recognize, or implement disruptive technologies, to their detriment. The dot bomb explosion has demonstrated what happens to those pimping overvalued products, impractical revenue models, and non-transparent policies.
Disintermediation and/or transparency aren’t nouveau business process concepts whose effects have never been studied, they can be seen in a number of recent events . Considering the mortgage market is many times the size in volume over it’s equities counterpart, totaling some $8+ Trillion dollars, the overall effects and shift of wealth will be proportionately huge.
Which side of the wave will you be on?
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The Effect of Transparency on the Mortgage and Real Estate Industry’s
May 2nd, 2008 Categories: General
Originally posted on The XBroker November 7, 2006
Few people like to entertain the guy who trashes their business model as antiquated, especially those within the industry who currently enjoy a comfortable margin of success doing business under the self-prescribed ‘right way’.
So, let me simply say that I am here to help, not just pee in your Cheerios. Maybe I’m guilty of a little too much self-promotion, but you can’t get mad at the kid who tries to answer the tough questions, whether invited or not, and offers a solution for everyone else to openly poke holes in/at/through.
‘Disintermediation’ is an act of progressive business practices that are more debated by the day in this ‘underground’ real estate related community. As these industry’s move towards the path of greater transparency, outsourcing for less expensive products and labor is becoming a required task more than an option or debatable topic. Globalization hit the mortgage service industries a few years ago, if you hadn’t noticed. Anyone can outsource file processing (from Indiana to India) at far less expense than employing an in-house processor, with less errors This is only the tip of the iceberg, the risk (or opportunity) is far greater.
Much like the traditional stock broker middleman, the mortgage broker/banker and real estate professional middleman is a species who is facing a slaughtering wave of attrition, and for very similar reasons. The mortgage bubble has popped, and as the market scales from historical demand back into some balance with supply, only the strong and/or adoptive will survive…specifically…those who can do more for less, in less time. In the case of the mortgage industry, new and inexpensive technology is mandating transparency and forcing disintermediation from traditional ways. Instead of looking over the entire landscape, many within the industry refuse to look further than past what they can currently see.
Too often I hear comments like:
‘No piece of technology is going to replace me!’, ‘I’ve been very successful for years, why would I change?’ ‘It’s not practical to do business like you suggest’, ‘My customers love the way I do business’, ‘People don’t mind paying my fee.’
The internet has only been around for apprx 11 years, it is still in it’s infancy. There were plenty of people 10 years ago that dismissed Information Technology in a similar fashion, and PC cynics before them.
The demographic that has grown up online is just now entering the mortgage marketplace. They don’t value the traditional relationship as much as information. It, not you, is recognized as the most valuable resource. If they can get around you on the cheap, they will, and someone will be there to sell it to them for less than you’re capable of. Think of it this way, fathom doing business without the net and still being as efficient and effective as you are today? Impossible.
Dot com era businesses (and their plans) blew up at the introduction of transparency into it’s inflated numbers and projections. Company’s with P/E ratios and other fundamental baseline measurements that made 0 economic sense imploded.
The stock brokers who were making huge rips under cloak were exposed and marginalized or eliminated from the industry. I got along great with my stock broker, that didn’t mean I felt obligated to pay him 2-3 times the amount I now pay to buy and sell my securities. I found a way to do it faster and cheaper. His job and fees were marginalized to the point he joined the mortgage industry. Now he’s looking at me like, ‘What’s next?’.
Quid pro-quo; What is the benefit of changing how you do business now? Market share, and alot of it. However, early adoption of disruptive technologies that promote transparency and as a result, increased loan volume, requires disintermediation from current mortgage broker labor compensation models and business processes.
The new mortgage market consumer will demand more efficient, less expensive, point and click, intuitive interfaces to gain their business. If your cost per loan acquisition is $1,200+, you have a shelf life of about 1 year. Insist on continuing to charge points instead of a fixed fee for (multiple) services? Get relegated to fighting for ‘whats left’. Own or working for a brokerage that pays some type of 30%-70% split? You’re pricing yourself out of competition.
Seth Godin postulates that integration of new technologies, business ideas, products, and paradigms generally move into general usage/acceptance along a traditional bell curve, which seems more than reasonable to believe.
Lets put the transparent, efficient, cost effective, and intuitive mortgage business model into the curve as a whole, assuming that what I have laid out becomes remotely true.
Where will you or your Company be in this curve? Among the late majority, or cynical laggards who die a slow death or play perpetual catch-up?…or among the innovators and early adopters who are positioned to capture significant market share….a market that is primed for a huge correction, the beginning of which we are just now seeing.
The e-myth demonstrates that a business owner, and thats all of us in mortgage services nowadays, must work on his/her business, not in it, to become successful. The Innovators Dilemma discusses the dangers of getting too comfortable in your current success model, and why the big traditional players in the market fail to innovate, recognize, or implement disruptive technologies, to their detriment. The dot bomb explosion has demonstrated what happens to those pimping overvalued products, impractical revenue models, and non-transparent policies.
Disintermediation and/or transparency aren’t nouveau business process concepts whose effects have never been studied, they can be seen in a number of recent events . Considering the mortgage market is many times the size in volume over it’s equities counterpart, totaling some $8+ Trillion dollars, the overall effects and shift of wealth will be proportionately huge.
Which side of the wave will you be on?
| Discussion: No Comments »
The Need for Transparent Mortgage Rate Search
May 2nd, 2008 Categories: Op/Ed
Originally posted on The XBroker March 30, 2007
I’ve had some heated (and circular) conversations with many in the mortgage industry regarding how unregulated the industry actually is, how it would be near impossible for legislation to clean up the mess. The Mortgage Industry needs something more than new Statements and Policies from regulatory agencies, with a few sacrificial lambs served up for show. Does anyone see the parallels between the Enrons, WorldComs and the mortgage industry? These books are cooked ‘X-tra well done’…ahhh, I can hear the paper hum of all the paper shredders as I type this.
Via my blogging here and ActiveRain it’s become very evident that unless you are inside the mortgage industry, you’re an outsider, and if you’re an outsider, you pay in cold hard cash. Even Realtors, designated and educated real estate professionals, have little idea about how the mortgage industry works. This amazes me since most Realtors tried to tell me how to do my job..? 
There’s no other industry that makes you pay for what you don’t know quite like the mortgage business. Michael and I like to call the greater traditional mortgage shops out there: The Mortgage Cartel.
The Mortgage Cartel has been busy burning wagons and taking scalps since the mid 1980’s, with the dawn of the mortgage broker. It was the Wild West and the Gold Rush all wrapped in one. Brokers jumped claims and worked the angles including something known as yield spread premium (YSP). YSP was introduced by the banks as a way for borrowers to finance closing costs through a voluntary increase in their interest rates. At least that was the idea. It was only a matter of time before brokers hijacked YSP and turned it into a clandestine profit center financed by unwitting consumers who had no idea what interest rates they actually qualified for. It was a recipe for disaster.
The passage of Regulation X in 1992 defined and outlawed hidden lender kick-backs. Post Reg X, brokers were forced to be more creative in order to maintain their hefty back-end “rips.” While typical loan fees ranged from 1%‚3%, there was almost always another 1% - 3% in hidden YSP camouflaged by ambiguous documentation and verbal gymnastics.
The problem with Reg X was that it only addressed the mortgage broker‚leaving mortgage bankers, for all intents and purposes, untouchable. To this day, direct lenders like DiTech can lawfully withhold information from the borrower during the process of mortgage program and rate selection. Things were bad, but they were about to get worse.
By the late 1990’s, networked information technology had reduced the task of pre-qualifying a mortgage to a point and click affair. Online brokerages like Ameriquest, DiTech, and eLoan emerged, waving a red cape at a bull market of consumers eager to reap the benefits of the New Economy. By 2002, the Disinformation Age of real estate finance was in full swing.
Operating beyond the reach of Reg X, online uber-shills sucked billions of dollars in overpaid interest expense out of the economy through such notorious schemes as DiTech’s “$395 Flat-Fee Loana Trojan horse packed with up to 3 points in hidden yield spread courtesy of an inflated interest rate.
At the peak of the refi boom, the Mortgage Cartel had effectively turned the Internet against consumers making the process of obtaining a mortgage online nothing more than a faster ride down the same dark alley. The disturbing truth is, if you got a mortgage between 1987 - 2007, the overwhelming odds are your monthly payment harbors a broker’s secret payday. And if you got your loan through a direct lender, you can all but guarantee it.
With bankers on one side and brokers on the other, the consumer was bound to get squeezed. When comparing identical offers from a mortgage broker and a mortgage banker, consumers routinely chose the more expensive loan.
Faced with the most uneven of playing fields, many brokers rationalized a culture of deception. One look at a typical HUD-1 broker closing statement is all the proof you need. Nevertheless, it was the online direct lender that posed the most imminent threat to consumers.
Why? Because it wasn’t perceived as one.
Faced with the most uneven of playing fields, many brokers rationalized a culture of deception. One look at a typical HUD-1 broker closing statement is all the proof you need. Nevertheless, it was the online direct lender that posed the most imminent threat to consumers. Why? Because it wasn‚t perceived as one….
With slick user interfaces, no high pressure mortgage jockey, and the ease of ‘point and click’, e-lenders utilized the Web and their exemption from Reg-X to their full advantage, they appeared to be the solution from the ‘unscrupulous mortgage professional’.
What RateSpeed is doing on the finance side of the transparent real estate equation is nothing short of cataclysmic. If ever there was a poster child for disruptive web technology, the RateSpeed transparent mortgage engine is it.
Designed to enable anyone to pre-qualify their own wholesale mortgage using 10 simple questions (none of which involving name, address, phone or social security numbers), it uses an anonymous risk profile to pre-qualify against the wholesale rate sheets of any number of opt-in lenders. No nagging phone calls, spammed up inboxes…and in a matter of moments, you‚re staring at something you‚ve never seen before:
The mortgage rates and programs you actually qualify for‚ REAL RATES, IN REAL TIME
Including what it really costs to buy down your rate (points) and what the lender will pay if you elect to bump it up (YSP). Once you‚ve seen what you really qualify for, you can use the information to negotiate a better deal with your broker, or you can leverage the RateSpeed network to find a reputable broker willing to deliver your wholesale mortgage on a true, flat fee basis with a 100% full-disclosure guarantee.
DiTechs of the world: Watch your backs.
Also See:
e-Lenders: When Thieves Compete, you Lose
Transpareny in the Mortgage Service Industries
The Mortgage Industry’s internal Civil War
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