If you are considering mortgage refinancing with your bank, you should read the following discussion first. Banks fall into a special category of mortgage lenders and routinely charge Service Release Premium (SRP) for their loans. What is SRP and why should you avoid banks altogether for your next mortgage loan? The answer will surprise you.
Banks and Broker-Banks are a unique type of mortgage originator as they fund their mortgage loans with their own money; Broker-Banks are simply banks pretending to be mortgage brokers. Everyone else in the marketplace (mortgage companies & brokers) is a retail vendor that sells mortgage products for wholesale lenders. Because banks fund their loans with the bank’s money, many people mistakenly think taking out a mortgage from the bank or credit union is going to be cheaper than taking out a retail mortgage loan.
The ugly truth about banks comes from the fact that they are exempt from the Real Estate Settlement Procedures Act (RESPA); legislation that protects homeowners from abusive lending practices by requiring mortgage lenders to disclose all fees and markup associated with their loans. When RESPA was being the drafted the banking lobby campaigned feverishly to be excluded from any disclosure legislation. Millions of dollars changed hands and when RESPA became law, your bank was exempt. This means the bank can literally charge you whatever they like and no one is the wiser.
So what is Service Release Premium?
Bank mortgage loans are often called “correspondent loans” because after the banker completes your mortgage that bank will immediately turn around and sell it on the secondary market. Banks earn a premium on the secondary market by charging Service Release Premium, and here’s how it works. Suppose prevailing mortgage interest rates are 6.00%. You have good credit and meet every requirement to qualify for a 6.00% interest rate on the wholesale market. Your banker knows this, but charges you 6.50%. The markup from 6.0% - 6.5% is Service Release Premium. Banks do this because they will receive an additional two points, or 2% of the loan balance, when the mortgage is sold on the secondary market. Because banks are exempt to all RESPA laws protecting you from this fleecing, you will never know it happened.
Every bank does this and because of the loophole in RESPA legislation and no bank will ever disclose how much they have inflated your mortgage interest rate. Another problem with banks is that your banker will be much less likely to negotiate for terms and interest rates because of the loophole. Banks exploit the loopholes in RESPA to make their loans seem more affordable with the fees and closing costs; however, they hit you with undisclosed SRP markup on your interest rate. Your bank will always quote you the highest interest rate they think you will go for.
The bottom line is that your bank will not be less expensive than other options; your bank will always overcharge you for the mortgage loan. You can learn more about finding the best mortgage loan without overpaying by registering for a free mortgage guidebook.
To get your free mortgage guidebook visit RefiAdvisor.com using the link below.
Louie Latour specializes in showing homeowners how to avoid costly mortgage mistakes and predatory lenders. For a free copy of "Mortgage Refinancing - What You Need to Know," which teaches strategies to find the best mortgage and save thousands of dollars in the process, visit Refiadvisor.com.
Claim your free mortgage refinance information guide today at: http://www.refiadvisor.com
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