If you are shopping for a new loan, here is the definitive question you should ask your Loan Officer - especially if he/she is a "Mortgage Banker."

Before I tell you what to ask, you need to understand a little background first, and complicating things is a new law that goes into effect on April 1st.

I'll try to keep this simple. Basically, a mortgage banker can only make money by either charging you upfront, like a Loan Origination Fee -- or -- they can make money on the "back end." This is called the "rebate" or the "Yield Spread Premium."

Yield Spread Premium is essentially compensation paid by the lender to the mortgage banker for delivering a higher interest rate.

The new law states that a mortgage banker can not receive compensation from both sources. It is "either or."

For example, a mortgage banker can not charge you, the borrower, a loan origination fee of say, $3,500 on a $400,000 loan, AND, also receive a point (another $4,000) as a rebate from the lender.

However - there is a bit of a "loophole" here - and I am about to act like the magician who reveals to the world how the trick is done.

Here's how a mortgage banker can still "double dip."

Let's say the mortgage banker does charge you that $3,500 upfront loan origination fee. Let's assume you were happy with that for your $400,000 loan.

Now let's say when it came time to lock the rate, the price for your rate was 101.000. That means there is a one point rebate, or in this case $4,000 that would have gone to your mortgage banker prior to April 1st.

Now however, after April 1st, that $4,000 can NOT go directly to the mortgage banker. But here's the deal - it CAN still benefit the mortgage banker. (Note - he can always give it to you like I do - but odds are he won't)

Instead - the mortgage banker has the option of keeping it as a "reserve" within his company. Call it a slush fund.

Then, at some point down the road, let's say the mortgage banker needs a new computer. The mortgage banker can have his company purchase that computer for his benefit.

The mortgage banker still got the benefit of that $4,000 (really nice computer), but he DIDN'T receive the $4,000 as compensation for that loan he did.

That's the trick. The mortgage banker can still benefit from that rebate.

Here's what you can do. (And this is what I do by the way as an Upfront Mortgage Banker from California). When you lock your rate, ask your mortgage banker to show you the rate lock confirmation.

Then, notice the price. It is always there. Ask your mortgage banker if he is going to give it to you.

If he doesn't give you a satisfactory answer - you might want to try someone else who acts like an Upfront Mortgage Banker.

This can be tricky with this new law - so feel free to reach out to me if you have any questions or need some free guidance on this. I will tell you how the magician does the trick. :-)

Rick Pelleriti
California Upfront Mortgage Banker
530-205-9145
rpelleriti@ascenthomeloans.com