This is the slimiest thing I’ve seen in a long time.
We quote most of our loans as “no points,” meaning that we truly don’t charge any points or discount points of any kind.
But a borrower recently left us for another lender (temporarily) that offered a 1/8% lower rate and “no points” too.
The problem was that the lender was also charging $10,000 in “origination fees,” and $10,000 MORE than what we were charging.
Fortunately, the borrower shared his Loan Estimate with us, and we were able to illuminate the slime-factor and bring the borrower back to JVM.
But sadly, this happens all too often, and many honest lenders lose borrowers to slime balls who intentionally obfuscate the terms “points, discount points, and origination fees.”
SIDEBAR: MBS Highway said today that the Fed and Congress are more divided than ever when it comes to the direction of rates. I suspect that the reason involves what I blogged about on Monday: Why Today Is Unprecedented and Nobody Can Predict Anything. I listed numerous factors why we’re in unprecedented times (lockdowns, $6 trillion cash infusion into the economy, asset price addiction, tariffs, etc.), but I missed a huge factor: our debt-dominated economy, with Federal debt at an all-time high of $38 trillion, or about 125% of our GDP. High debt levels are warping every major economy right now.
Note: The Fed is still expected to cut the Fed Funds Rate by 0.25% at the end of the month.
The Difference Between Points, Discount Points, and Origination Fees
For the most part, there is no difference. ALL are lender charges.
A point is 1% of the loan amount. Points and discount points are ostensibly charged to “buy down” an interest rate.
Some loan officers, however, charge points and pretend to buy down an interest rate, when they are really just stacking the points on top of a rate that is already yielding substantial “rebate/yield premium/commission” (to be paid by the lender or the investors who buy the loan after close).
Origination fees, on a Loan Estimate at least, typically just include administrative fees for processing and underwriting – and are much lower than a “point.” But all kinds of lender fees can make it into this bucket, and it can be inflated tremendously (like we saw with my story at the top of this blog).
FINAL POINT: Beware of excessively low rate quotes, as there are often hidden fees. Borrowers need to compare Loan Estimates with their lenders closely – focusing on “Box A,” as that is where all of the lender fees are.
