Not only have people asked why we created RateWindow they have asked what does it do for real estate agents. In an attempt to answer those questions– 1st of all Why?

We created RateWindow because as an owner of a financial planning firm, in a former life, we were always dealing with our clients and their mortgages on purchases and refinances. As we dealt with those clients we came to the realization that the biggest purchase most people make in their lives is their home. We also realized that the three most important things about real estate ARE NOT location, location, location. The three most important items are financing, financing & financing. As we dealt with this more and more we decided to dig deeper into how mortgages were priced and how they could be structured to serve the best interests of our clients. We didn’t have to dig too deep to realize that our clients best interests were not being served by the lending community at all, but were serving the pockets of the lending institutions and their mortgage originators.

From this investigation came the idea for RateWindow, a tool for consumers to be able to see all the interest rates available from a mortgage originator and make the choice that was best for them not the originator. RateWindow reveals the rate sheet to the borrower in a simple, concise, and understandable way so they can choose what is best for them. As an example if a borrower needed some additional funds to cover closing costs then they can choose a higher interest rate and use the attached YSP (yield spread premium) to offset those costs. They can also see what the higher interest rate would do to their payment and they can see it in 30 or 15 year fixed rates or for 5/1 arms. The borrower could also choose the par rate or what it would take to buy the interest rate down. Borrowers armed with that information created a great deal of trust with a mortgage professional who worked off the platform of trust and full disclosure, including a fixed fee for the service the mortgage professional performed.

This included that all third party fees such as processing, appraisal, and other fees were passed through at cost and did NOT include any junk fees that further padded the pocket of the originator. Clients of both the real estate agents and mortgage professionals loved the transparency of the transaction so we decided it time had come to bring it to as many borrowers as we could and thus came the creation of RateWindow.

Secondly, what does it do for the Realtor? We have designed RateWindow as a small application (widget) that will run on anyone’s website including real estate agents sites. Real estate professionals work really hard to get people to their sites so RateWindow provides their sites with additional adhesives so they will stay there. A real estate agent could say to a prospect, “Go to my site and not only can you see all the real estate for sale, you can also check out all the mortgage rates available and if needed get cash for closing costs.”

Not only can you wear the White Hat for your prospects and buyers to expose them to total transparency in the mortgage world, RateWindow also will send a “soft touch reminder” newsletter with your branding and most recent blog post to those who opt in for updates on the rates available. All of this comes from your website and doesn’t take your hard earned traffic somewhere else!

“You don’t need to worry about the amounts in that column.  That’s being paid by the lender, not by you.”

“YSP isn’t paid by the borrower so you don’t need to worry about it.”

These are common phrases that might be heard by a borrower when asking questions about loan documents.

Does the lender really pay the Yield Spread Premium (YSP); or is it covered by the borrower through increased payments over the life of the loan?  Even if you get straight answers to your questions when you are sitting at the closing table, in most cases, it’s really too late.  Not many people at that point are willing to walk away from a home purchase even though they are surprised by $2,000 to $5,000 in additional cost when that is less than 1% of their purchase price; or $50 – $100 more in their monthly payment.  The lender and mortgage professional know this and are confident that very few borrowers will: stop the sale of their current home because they “didn’t understand the paper work”; or walk away from the closing table and disappoint their family by telling them that the home that they shopped 6 months for and worked the financing for the past 3 months on isn’t theirs after all; or voluntarily spend another several months in a rental after all the work they’ve done in getting to closing.

The situation is not so dissimilar to the used car deal and “car dealer math” that we make so many jokes about – the difference is that used car payments last a couple years while mortgage payments last 30 years and the cumulative $100/month difference could have purchased multiple used cars.  The need for transparency in home buying prior to arriving at the closing table is critical.  This inherently means that the buyer needs to have some idea of how the mortgage professional is paid.  The upfront stating of the price for the service being provided would be refreshing.  Instead of the taking of money behind the borrowers back with out them being aware.  With the lingering mistrust of the mortgage industry in general, transparency in the “mortgage math” could go a long way in restoring confidence to a still troubled industry.

With the recent Real Estate Settlement Procedures Act (RESPA) changes to the good faith estimate (GFE) effective January 1, 2010, it’s seems time for mortgage loan officers to let go of the Yield Spread Premium (YSP) dependence. For decades, real estate agents have been making their living charging a flat fee that is always disclosed up front when the real estate contract is signed by the seller. There is no mystery surrounding the fee, and the Realtor has no opportunity to manipulate or hide anything from the seller. Some loan officers have depended far too long on their ability to direct borrowers into interest rate commitments that may not have been in the optimal interest of the borrower, but certainly may have lined the pockets of the loan officer.   This is not to say that all loan officers have been lining their pockets, but the time seems to have come where full, upfront disclosure and transparency of the loan transaction details is overdue.

Loan officers can easily charge a flat fee, a fixed percentage of the loan amount, or a fee on some sliding scale based on the strength of the borrower, disclose this fee structure up front, and then allow the borrower to see the best rates the loan officer has to offer, and allow the borrower to make their own choice.   In addition, with the YSP now required to be given back to the borrower as a credit toward closing costs, if the borrower sees all interest rate alternatives side by side with the available YSP and payment information, they can make an informed and balanced choice that works best for their particular situation.   If the borrower wants a little higher interest rate that throws back a higher YSP credit to cover closing costs, let that be their decision and not left in the hands of the loan officer.   In this way, the loan officer is assured of getting paid a fair and reasonable fee for the loan, and can help the borrower make judgments that are focused away from how much the loan officer will make on the deal.

It’s seems time to release the death grip on YSP and transition to a flat fee or percentage of the loan amount fee for the loan officer that is disclosed on the front end of the transaction, not only for the benefit of the borrower, but for the reputation and credibility of the loan professional.

I’m not a mortgage broker or real estate agent. I’m a programmer and like most people not in the business, I have no idea what happens behind the scenes when buying a home, getting a mortgage, going into escrow, or any other real estate transaction process. So when I was hired to develop RateWindow.com I was told about how transparency will help the typical mortgage borrower, but still didn’t truly understand it. So, I went into my personal records and found a closing statement from a condo I bought a few years ago. What I found made everything clear!

I’m pretty sure you don’t know what Yield Spread Premium (YSP) is. It is  hidden in most mortgage transactions until the closing statement is presented and home buyers are ready to close escrow and complete the home buying process. Below is an actual scan of a closing statement is which you can see the YSP among all the other fees that are associated with a home purchase.

In this case the YSP was over $3,800, a hefty chunk of change.

I didn’t even see it, until I re-read the statement 3 years later. It was probably mentioned during the 30 day escrow but at that time your head is spinning with all the docs you have to sign and things to do. Worse thing is, I was really good friends with the mortgage broker, and now that I understand YSP better, I will never look at them the same way.

Why is the YSP not even in a debit column?

because, it is not a direct payment. It is carried into the life of the loan, so not only is it a large amount, but it will be compounded by interest over the next 30 years. That alone will triple the amount.

If you are unfamiliar with YSP, you can do some research on it at the YSP wiki

An inherent problem with the Yield spread premium is that it’s anti-capitalistic. Typically, the borrower has no idea or does not completely understand how the broker is potentially compensated on the back end and therefore can’t truly price out the service being provided to the borrower. The definition of capitalism is a willing buyer, knowing all the facts and circumstances surrounding a service the buyer is considering purchasing (including how much the service provider is being compensated) makes a choice to use the service provider. Since the borrower typically has no idea or does not understand that the broker could potentially get paid on the back end, they can’t compare terms between brokers.

Back to RateWindow.com. Now that I understood YSP better, mind you I’m still a developer, and still don’t understand all the mortgage talk, I was ready to fully jump on board. I’m very proud to be part of the transparent movement now and know that I was the first to develop a web application that turned that $3,800 FEE into a rebate to the consumer.I can only hope for the future an in 5, 10, 15 years I smile when I think of all the rebates people will get with the services I helped make. I think the savings will be in the millions!

Click to check out RateWindow, even if you’re not in the market for a loan, I think you’ll see that it is a much needed service, especially with the current economic conditions of the nation.

In the eyes of a typical homebuyer, what is the lending process like? I'll talk about this in my next blog post.

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