Beware of "No Cost" mortgage loans. There is no such thing as a free lunch. Below is a communication issued by Countrywide to its brokers restricting the total compensation to its brokers to 4%. That means that some brokers working on behalf of Countrywide have been charging in excess of 4%. That amount of commission is unethical, in my opinion. Doing mortgages requires expertise and takes a lot of work, but a 4%+ commission to brokers is unjustified.

A lot of naïve borrowers get lured in by "no cost" loan offers, which are most often the farthest thing from "no cost." If you do not pay the mortgage broker fee up front, it gets paid via what is known as a Yield Spread Premium (YSP). This is a cash rebate that the broker receives based on putting the borrower in a mortgage rate that is higher than what the borrower actually qualifies for. Mortgage brokers who push "no cost" loans often use that line to attract borrowers, and the unwitting borrower often winds up paying more overall via a higher interest rate. There is nothing wrong with YSP. You can either pay the mortgage broker fee upfront or pay a little higher interest rate, and the broker will be compensated on the back end via YSP. The choice is yours. There is nothing unethical about YSP. The wrong is found in exorbitant mortgage broker fees. Anything over 2%, in my opinion, is excessive.

Here is what sets me apart from many other Colorado mortgage brokers: I am upfront when it comes to my commission. My standard commission is 1%, which is much lower than my competitors (most of whom charge 1.5% - 2%). If you compare my fees to the unscrupulous brokers charging in excess of 4% referenced in the letter below, the savings amounts to no less than $12,000 on a $400,000 loan.

There is no such thing as a "no cost" loan. If you are looking for a Colorado mortgage, give me a call. I am honest and upfront about my fees. I will spend time to get to know your situation and put you in the best loan for you. There will be no surprises if you work with me.

Countrywide communication to its brokers (March 31, 2008):

The following is an Important Message regarding Broker Compensation. 

Dear Valued Business Partner: 

Consistent with evolving industry standards within the wholesale lending environment, Countrywide®, America’s Wholesale Lender® will be modifying the current Broker Compensation Policy for all broker-originated loan transactions. Effective Thursday, April 3, 2008 at 8:00 p.m. (PT), the maximum allowable total broker compensation will be set at 4% - which includes Yield Spread Premium (YSP) plus any additional points and fees charged by the broker to the borrower.* 
Broker compensation limits do not include discount points paid to the lender to reduce the borrower’s interest rate, lender fees, broker credits to the borrower or pass-through fees paid to a third party for actual services rendered. 

Impact to Pipeline 
Loans currently in the pipeline must be in “Docs Out” status, as reported on CWBC, by Thursday, April 3, 2008 at 8:00 p.m. (PT) or will be subject to the new Broker Compensation Policy. In addition, pipeline protected loans under the old Broker Compensation Policy must fund no later than Wednesday, April 30, 2008. 
If you have questions regarding this new policy, please contact your Countrywide Account Executive. 

Thank you for your business. 

Source: BlownMortgage