It’s a sad thing when you feel like your industry is taking advantage of consumers. This is exactly where I find myself right now. For 20 years, rather than sit back and do nothing, I have decided to speak up and voice my opinions to expose some of the corruption that takes place in the mortgage industry. I do this with the hope that I can help clean up the practices that many lenders are involved in, while helping consumers save money on one of their largest budgeted expenses; their home mortgage.
The Truth Behind Mortgage Interest Rates
Many consumers don’t realize that most of the money earned by a mortgage company comes from fees paid to the company for charging their clients a higher mortgage interest rate. In other words, mortgage companies are financially rewarded for placing their clients in higher interest rate mortgage loans. When combined with fees charged directly to a borrower, it isn’t uncommon for a mortgage company to have a total of 4% of the loan amount as an average income. For example, a $300,000 loan could have $12,000 or more in revenue provided to the mortgage company that closes the loan.
Does a $12,000 income seem excessive for closing a $300,000 loan? I assume most would agree that this is a lot of money relative to the amount of work that goes into closing a home loan. In fact, I believe the fair revenue should be half this amount or less. That would offer the consumer a much lower interest rate which would reduce the monthly payment burden that the homeowner must incorporate into their monthly budget.
Loan Officer Compensation
One reason that mortgage companies must make as much as they do on each loan is to pay for their commission-based loan officer who originated the mortgage. Loan officers are generally paid a set percentage of the mortgage, which averages between 1.25% – 1.75% of the loan amount. If the loan officer is on a 1.25% commission structure, the loan officer will personally make $3,750 for closing one $300,00 mortgage. Once again, I ask you, is this excessive? I believe it is. With technology and a loan processing staff taking a significant portion of the work-load, one loan officer can easily close 12-25 loans in a month.
That would have a loan officer earning far more than the average heart surgeon, which again seems excessive to me.
Another reason mortgage interest rates are higher with many mortgage companies is due to collusion that exists between real estate agents and mortgage lenders, where the mortgage company in some way financially supports the real estate agent’s business. In turn, this drives the costs higher and increases the rates offered to the consumer. It is important to note that real estate agents have a fiduciary responsibility to their clients, which means they should always be doing what is in the best interests of their customers. When they refer to a high-priced mortgage loan officer because that loan officer provides financial assistance to the real estate agent, the agent isn’t truly acting in the best interest of the client. Rather, they are acting on their own best interest. If the result is the same, the real estate agent should be referring to the mortgage loan officer that isn’t charging a premium interest rate for a commoditized product.
Exposing behind the curtains of the mortgage process will come with challenges. I anticipate ruffling some feathers along the way. There are many loan officers and mortgage companies that aren’t prepared to operate on the slim margins that lower priced lenders like City Creek Mortgage have lived on for years. For obvious reasons, they will fight to maintain the paychecks they are accustomed to. However, I’m not alone in this battle and plan to get this message out to every consumer in need of a home mortgage. For those who believe what I believe,
I appreciate your support and continued loyalty.
– Mortgage Mike
If you’re ready to save thousands by not paying fatty commissions that end up in the pocket of your lender, contact City Creek Mortgage today.