The Truth Behind Points, Part II

The Truth Behind Points, Part II

The Relationship between Borrowers and Brokerage revenue


Mortgage Lender Branch or Mortgage Broker Revenue

Just because a bank, mortgage lender or mortgage broker branch brings in $3,000 in revenue, does not mean the Loan Officer earns $3,000 in commission. In general, 50% will go to the branch or broker to meet overhead, leaving your Loan Officer to earn a modest $1,500.

Banks and Mortgage Lenders generally have minimum Branch Requirements per loan. $2,000 - $3,000 is average for conventional loans. Mortgage Brokers & Correspondents can extend more flexibility and may, should they choose to, only generate $1,500 or even $1,000 gross revenue on a loan, for a really good client, friends, family, etc.

Some newbie Loan Officers may also work for $1,000 or $1,500 ($500 to $750 in commissions) because they need the business. I will say this: you will always get what you pay for.

Real Estate Investor-specific information

Don't nickel and dime a good Loan Officer as he or she will make you or save you tens of thousands of dollars over the course of a relationship. Let him or her make what they generally make and the service will come ten fold.

HELOCS: Don't think you are doing your loan officer any favors by originating a $30,000 HELOC (Home Equity Line of Credit) for you. Home Equity Line of Credit Loans are issued to our Real Estate Investor Clients as an added service.

In order for a branch to meet their $3,000 requirement, the Loan Officer will have to charge you about 6.5 points to do your loan, as most HELOCS do not provide for yield spread premiums (Commissions from secondary or wholesale).

In my opinion, that's a rip off for a $30,000 HELOC. So what ends up happening is your Loan Officer does all of that work and charges a modest 1-2 points in order to remain competitive. In other words, his branch will gross $300 - $600 for doing your HELOC loan, and he will earn approximately $150 - $300 in commissions, if that.

As you can see by the above examples, there is very little money to be made in HELOCs. The originating industry funds HELOCs for clients as an added service, with the hopes that they are given the opportunity to fund the next $100,000 or $500,000 purchase or refinance loan for their HELOC clients.

Shopping For the Best Deal

Next time you are shopping for a mortgage, don't ask the questions everybody in the industry dreads:

- What is your rate?
- How Many Points are you charging?
- Can you fax me a Good Faith Estimate?

Those are signs of a Green Horn or Newbie Real Estate Investor who bought the wrong "How to get rich by investing in Real Estate" book.

Find someone you feel totally comfortable with. Someone who knows the game and can help you structure your deals as if they've done it a thousand times. Someone who has worked with numerous Real Estate Investors, and can provide you insight in credit, income & asset structuring. Someone who can analyze your Real Estate Investment objectives and structure your transaction with your tenth transaction in mind (Very IMPORTANT). Someone who can guide you in making sound investment decisions. Someone who is honest enough to tell you what they need to make per loan and honest enough to tell you that the property you are looking at stinks and not to buy it. Find someone who will work with your interests in mind. Someone looking to establish and grow a strong Lender - Borrower Relationship with you!

That someone must have access to unlimited mortgage lenders, so they can obtain the most competitive wholesale pricing.

Banks and pure mortgage lenders are out of the question. Find any Bank or Lender and most "Multi-capacity Lenders/Brokers" will beat their conventional quote by at least .250% every single time. Don't make the mistake of thinking that you should go straight to the bank for lending, falsly thinking you are "big-time" enough to go right to the source. WRONG.

Larger Multi-capacity Correspondent Lenders and Brokerage Houses who have been in the business for long periods of time with track records of funding large volume through their wholesalers will generally receive additional production bonuses. Also, if you are dealing with an honest Loan Officer who is in this position, they will pass those savings on to you.

Find yourself a good Mortgage Broker who is knowledgeable, and has lots of loan volume. That optimizes your ability to procure the best possible pricing and have access to an unlimited pool of lending products and lenders, just in case you or the people buying your homes and/or cashing out your Lease Options may not qualify for Conventional/FNMA Loan Programs.

With that said, the questions you should ask are:

a. How many residential loans have you personally closed in the last 12 months, and how many were investment properties?
b. Can you spend some time with me and let's discuss what you know about Real Estate Investing and how you can help my business grow?
c. Based on how many and the type of homes I wish to purchase per year and my credit & income profile, how much are you willing to work for per loan?

If you want to be a successful Real Estate Investor, you will need a dependable source of money. A source you can call, provide particulars to, and trust them to get the deal done, so you can spend your time looking for the next good buy and not worrying about your loan funding.