| Bad credit borrowers are the most likely to be | | | | qualify for? |
| overcharged on their mortgage interest rates. Plain and | | | | NO! |
| simple. | | | | Instead you are offered 7.5% for the 30 year fixed! |
| Why? | | | | And here's where the perception factor kicks in... |
| Simply because sub-prime borrowers anticipate and | | | | You, knowing you have had credit troubles in the |
| expect "higher" mortgage interest rates. This is no | | | | recent past, would perceive 7.5% as an OK rate so |
| surprise - over 680 FICO = best rates, below 680 | | | | you don't really question it. Plus the broker seems |
| FICO and your rates go up. Right? That's common | | | | pretty knowledgeable and sincere about why you are |
| sense. | | | | receiving that interest rate quote. |
| The problem is, if you are a bad credit borrower you | | | | Yield Spread Premium (YSP) is the amount the broker |
| will probably put up the "least" resistance when dealing | | | | "marks up" your wholesale interest rate. |
| with mortgage brokers and unknowingly accept | | | | YSP is that "extra .5%" he added to your wholesale |
| "artificially inflated" interest rates. | | | | rate of 7% which put an extra $2000 in your brokers |
| Based on your credit score, income and debt ratio, you | | | | pocket. |
| qualify for a "loan program" or interest rate offered by | | | | You see, on average, for each .25% the broker can |
| a variety of wholesale lenders. Your "broker" is simply | | | | increase the interest rate over the wholesale rate |
| a middleman who processes the loan but the loan is | | | | YOU REALLY QUALIFY FOR, the broker gets a nice |
| actually funded by the wholesale lender. | | | | bonus. |
| Now here's the scam... | | | | The bonus is 1% of the loan amount for every .25% |
| Say you qualify with the wholesale lender for a rate of | | | | added to the wholesale lender's rate. |
| 7% on a 30 year fixed mortgage, loan amount | | | | How can you keep the brokers honest and avoid YSP |
| $200,000. Remember, your credit is banged up a bit, | | | | and get the wholesale rate you deserve? |
| you've had a couple 30 day lates etc... | | | | Easy! |
| Does your broker offer you the 7% loan you actually | | | | |