How Brokers Get $

How do Mortgage Brokers and Bankers make

money on a loan?

Mortgage Brokers are compensated in two different ways when obtaining a loan for a borrower. Commonly called "the front" and "the back" of a loan, mortgage brokers and bankers will charge a number of fees to you the borrower, which are spelled out in a Good Faith Estimate, as well as earn "rebate" or "Yield Spread Premium" directly from the lender.

"Front End Revenue Fees" include: Loan Origination, Mortgage Broker, Administration, Processing, and sometimes a Application Fee.
"Back End Compensation" comes in two different forms. The first is Yield Spread Premium. This is money that a lender pays to the mortgage company for increasing the rate above the wholesale rate.

5.250	2.250
5.375	1.500
5.500	0.750
5.625	0.000
5.750	-.500
5.875	-.750
6.000	-1.00
6.125	-1.625
6.250	-1.875
6.375	-2.00

You can see by the example above that the "Wholesale" or "Par" rate is 5.625%

Most Mortgage Brokers would have the borrower (who has no idea that there is a difference in rates) agree to lock in at 6.000%. This would give the Mortgage Broker a 1% "Rebate", which on a 200k loan would equal 2,000 dollars in extra profit to the mortgage broker or lender. Another way for mortgage brokers and lenders to make "back end" money deals specifically with FHA, VA, and USDA Rural loans. With these types of loans, the mortgage broker receives a Service Release Premium on top of any Yield Spread Premium. Sometimes these SRP are included in a wholesale rate sheet as shown above and other times it is located on the wholesale rate sheet and added to any rebate that the mortgage broker may be receiving.

You will also notice that according to the example rate sheet, a 5.375% rate would "cost" the borrower 1.5%. This would come in the form of "Discount Points" The tricky thing about discount points is sometimes mortgage brokers and lenders will actually quote the borrower the "Par" rate of 5.625%, but will also charge a 1.0 - 1.5% "Discount Points" that are not really used to buy down the rate. Often times this is actually pure profit that goes into the pockets of a mortgage broker.