Chris,
As you know, many lenders have an adjustment to rate when offered an interest only product. We call this a “hit” to rate or price. They also have an adjustment for loan size, doc type, LTV, escrows, and so on… This is how you price out a loan. We all know this. But to charge someone a “discount fee” for interest only is in my opinion not very professional. Do you charge a “discount fee” for loan size? or LTV? or second home? No you don’t. Why? because this is what makes up pricing. Interest only is just another option for you to determine pricing.
Because then you are probably charging an origination fee, a broker fee and a processor fee. The only reason you should be using the “discount fee” line is if someone is going to buy down the rate.
(discount points) – Money the borrower pays the lender at closing to “buy down†the mortgage rate — get a lower interest rate on the monthly payments. One discount point equals one percent of the mortgage amount.
Of course your’re going to find Wells Fargo and all others that make an adjustment. Some lenders do, some don’t. But to charge a “discount fee”. No. In my opinion. Not professional at all. It alludes the borrower into thinking that they are getting a discount or buying down the rate… when actually all you are doing is offering an adjustment to pricing.
I’ve been in this business for a very long time and I’m licensed in most nationwide states and very familiar with how to read rate sheets, matrixes and underwriting guidelines. I am a commercial loan officer, a construction loan officer as well as a residential loan officer. But titles are titles, nothing more. My experience speaks volumes. You can see on my website that I’m very informed as well as very informative to the public. I am honest in this business. There’s no need to charge a “discount fee” for any adjustments to pricing with me. I am straightforward, absent of any junk fees, no processing fees, no spread out fees, just one straight origination fee. I make things simple and not misleading. It makes the customer more comfortable in knowing what he/she is getting charged and why…Given that the purpose of the RESPA restriction is to protect borrowers from being over-charged and deceived.
You were probably taught how to sell at the beginning of your mortgage career. Which many loan officers like you are selling discount fees for obscure reasons. However, this is what essentially leads to predatory lending.
Not saying that you in particular are involved in any which way, shape or form of predatory lending or violating RESPA. It is just that I have seen this before and I was taught through basic banking principles. I only utilize the “discount fee” line in case the borrower wishes to buy down the rate.
How did you violate RESPA?
Here’s a clip taken directly from RESPA:
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(5) RESPA should be vigorously enforced to protect borrowers and
ensure that honest industry providers have a level, competitive playing
field.
In accordance with these principles, this proposed rule would first
fundamentally change the way in which mortgage broker compensation is
reported by requiring, in all loans originated by mortgage brokers,
that any payments from a lender based on a borrower’s transaction,
other than the payment for the par value \7\ of the loan, including
payments based upon an above par interest rate on the loan (payments
commonly denominated yield spread premiums''), be reported on the Good Faith Estimate (and the HUD-1/1A Settlement Statement) as a lender payment to the borrower. Additionally, in brokered loans, any borrower payments to reduce the interest rate (discount points’') must
[[Page 49136]]
equal the discount in the price of the loan paid by the lender, and be
reported on the GFE (and HUD-1/1A) as borrower payments to the lender.
These changes would require mortgage brokers to disclose, at the
outset, the maximum amount of compensation they could receive from a
transaction, and include the amount in the ``origination fees’’ block
of the GFE and separately on the GFE Attachment A-1. They would then
disclose the amount of the lender payment to the borrower that would be
received at the interest rate quoted, if any. Mortgage brokers would be
unable to increase their compensation without the borrower’s knowledge,
either by placing the borrower in an above par loan, and receiving a
payment from the lender (yield spread premiums), or by retaining any
part of any borrower payment intended to reduce the loan rate (discount
points).
In other words, you are charging a discount fee to get below “PAR†and you’re paying the lender a “discount fee†instead of the lender paying you a rebate or yield spread. And therefore, by you charging someone a “Discount Fee†for something other than buying the rate down below “PAR” and still receiving a rebate, you have violated RESPA.