What's Your Mortgage IQ?

Here's a quick test of your mortgage IQ. If you don't know the answer to each and every one of the following questions, you would be well served to read through the blog. A couple of the questions relate to subsequent posts.

1. Which mortgage companies are required by law to provide full disclosure?

a. Direct Lender
b. Broker

2. Why is it important to know who is required by law to provide full disclose and who isn't.

a. Knowing this enables you to control costs.
b. If you don't control costs, you'll end up paying more closing costs than you need to.
c. If you don't control costs, you'll end up getting stuck with a higher interest rate than you need to.
d. All of the above.

3. Which rates generate a rebate?

a. Discount
b. Premium
c. Par

4. Which rates require you to pay a discount?

a. Rates that are lower than par.
b. Rates that are higher than par.
c. Par.

5. Which rates constitute a mortgage company’s greatest source of undisclosed/under-disclosed profits?

a. Discount
b. Premium
c. Par

6. Rebate pricing can be used to:

a. Line the pocket of the broker.
b. Eliminate the need to come out of pocket to cover closing costs.
c. Both

7. An underwriter may condition your loan’s approval on your willingness to accept a slightly higher interest rate?

a. True.
b. False.

8. An underwriter may condition your loan’s approval on your willingness to accept a slightly higher interest rate that generates a rebate?

a. True.
b. False.

9. An underwriter may condition your loan’s approval on your willingness to pay a discount fee that will NOT result in the delivery of a lower than par interest rate?

a. True.
b. False.

10. Origination fees are negotiable?

a. True
b. False

11. Origination fees are easier to negotiate if you are dealing with a direct lender?

a. True.
b. False

12. Par interest rates are only available to borrowers with excellent credit?

a. True.
b. False.

13. Rebate pricing will be disclosed on the broker’s Good Faith Estimate as

a. A “P.O.C.”
b. A “YSP or Yield Spread Premium”
c. A “SRP or Service Release Premium”
d. Any of the above.

14. When disclosed on the Good Faith Estimate provided at application, rebates are usually expressed as:

a. Dollar amounts.
b. A percent or percentage range.
c. Both.

15. The lowest rate at the lowest cost will always be:

a. The par rate.
b. A discounted rate.
c. A premium rate.

16. The only way to ensure you are getting the lowest rate is to control the broker’s income.

a. True
b. False

17. The single greatest source of under-disclosed lender income is derived from:

a. The origination fee.
b. Service Release and/or Yield Spread Premiums.
c. Underwriting and processing fees.

18. It costs more for the broker to originate a $500,000 loans than $100,000 loans.

a. True
b. False

19. Some brokers can deliver lower rates than their broker competitors?

a. True.
b. False.

20. Brokers have relationships with dozens of direct lenders.

a. True.
b. False

21. When you shop for a loan, it’s important to find the broker offering the lowest par rate on any given day.

a. True.
b. False

Answers:

1. Broker.
2. All of the above.
3. Premium.
4. Rates that are lower than par.
5. Premium
6. Both. Premiums may be used to offset closing costs or pocketed by the loan officer as overage.
7. True but only if the secondary market requires that a premium be paid to offset risk.
8. False. Underwriters do not levy conditions to generate overage. Their role is to minimize risk, not generate overage.
9. True but only if you are buying an investment or property. If you are securing a mortgage on your primary residence, the answer would be false.
10. True.
11. False.
12. False. Any loan officer who insists that a par rate is not available is lying to you. Apart from investor properties, there is a par rate for every mortgage product.
13. Any of the above.
14. A percent or percentage range. Loan officers do this because to express them in real dollars raises a red flag.
15. The par rate.
16. True. If you control the broker’s income, you will control the rate that’s delivered.
17. Service Release and/or Yield Spread Premiums.
18. False. The lender’s cost to produce any loan is the same.
19. False. If you restrict your dealings to brokers who have been in business for at least five years, each will have access to the most competitive rates in your market area.
20. False. Brokers restrict their wholesale relationships to two or three main providers. The idea, therefore, that there is some advantage to dealing with a broker who claims to have dozens of such relationships is nothing but hot air.
21. True. It’s important, however, to keep in mind that loan officers frequently quote an undeliverable rate to get business in the door. When you shop, make sure you are asking for the rate associated with a 30 day lock-in guarantee.