Understanding Your Denver CO Mortgage Loan: How Mortgage Brokers Get Paid
Denver CO Home Mortgage brokers receive payment in one of two ways: either front-end compensation or back-end compensation. Front-end compensation means that the Denver CO broker is collecting fees directly from the Denver CO home borrower, whereas back-end compensation means that the Denver CO broker is collecting fees from the lender. The broker does not receive money from all the fees, but a borrower will not usually be given detailed information about this.
Some of the fees associated with front-end compensation are the underwriting fee, administration fee, origination fee, marketing fee, processing fee, and discount fee. A Denver CO real estate borrower should check with the lender on what charges there are. Lenders are required to provide a Good Faith Estimate (GFE) that details all of their fees. Be sure to get a copy of the GFE with a breakdown of each fee the broker is charging. If the broker is hesitant or refuses to share that information, it is a sign that the borrower has chosen a dishonest broker and should look for a new one.
Back-end compensation comes in two forms depending on the role of the broker. The broker could be acting simply as a mortgage broker or could also be acting as a mortgage banker. The first example, a mortgage broker without mortgage banking duties, would be someone who is arranging for financing, not funding it. A mortgage banker both arranges and funds a loan.
A mortgage broker that does not also work as a mortgage banker gets a check form the lender as a result of getting a higher interest rate on the loan. The higher the interest rate, the bigger the check the broker receives. The name of this system of back-end compensation is called a Yield Spread Premium (YSP). Lenders are required to put this information the on GFE.
A broker that does act as a banker gets a check from the lender in addition to the money received directly from the borrower. This is called a Servicing Released Premium (SRP). Lenders are not required to divulge this information.
Every loan will either be YSP or SRP. This is true no matter whether the loan is coming from one retail bank or from a broker who works with many lenders. Be informed and research lenders thoroughly before applying for a loan. We, at The Richards Group, can help you with this! Give us a call… 🙂
The Richards Group
Denver Colorado REALTORS®