Most people never ask their lender how they are paid. I would rather you ask, because the answer explains why my quotes look the way they do and why I can often beat the bank on the same loan.
The short version
Every mortgage lender — banks included — is paid out of the loan. There is no such thing as free. The only questions are how much, whether you can see it, and whether the lender can use the money the loan generates to lower your costs. I set my compensation on every loan individually, I am free to use the value of your loan to offset my fee and your closing costs, and I will show you the numbers if you ask.
Where the money comes from
When a lender funds a loan at a given interest rate, that loan has a market value above its face amount — the higher the rate, the higher the value. In the industry this is called the yield spread or service release premium. It is how a bank can advertise a “no cost” refinance: they choose a slightly higher rate, the loan is worth more, and they use that extra value to pay their own costs and yours. It is also the money a bank quietly keeps when it does not need to compete for your business.
Why I operate as a direct lender, not just a broker
Under the rules written after the 2008 financial crisis, a mortgage broker has two ways to get paid, and neither is flexible. Under “lender-paid” compensation, the broker’s fee is a fixed percentage set in advance with each lender — it cannot be lowered to win your loan, and it is baked into every rate the broker quotes. Under “borrower-paid” compensation, you pay the broker’s fee directly as a closing cost, and most lenders will not let the loan’s yield spread be used to offset it. The practical result is that a pure broker usually cannot offer you a true zero-closing-cost refinance and cannot cut his fee to match a bank’s quote.
Straight Deal Mortgage funds loans on its own warehouse lines as a correspondent lender with a select group of investors, and I still shop every loan against a broad wholesale panel to make sure that pricing is the best available. Because I am funding the loan rather than brokering it, I am not boxed in by the broker compensation rules. I can:
- Set my compensation loan by loan — lower on a large or simple loan, and never inflated to hit a fixed percentage.
- Use the loan’s yield spread to offset my fee and your closing costs — which is how I deliver genuine zero-closing-cost refinances, so refinancing again when rates fall costs you nothing.
- Give you a Loan Estimate that reads the way a bank’s does — so you can compare my quote to any bank’s quote line for line without a translation lesson.
- Control the timeline — I choose the appraisal company and I am not waiting in a wholesale lender’s queue, which is how I have closed purchase loans in 15 days or less since 2004. In a Bay Area market where roughly 30% of buyers pay cash, that speed is what gets your offer accepted.
What this means at the kitchen table
When you compare quotes, compare the rate, the total closing costs, and the cash needed at closing — those three numbers tell the whole story, and mine are built to be compared that way. If a competing quote is better, tell me; I can usually match it, because unlike a broker, I have the room to. And if you want to see exactly what I am earning on your loan, ask. I have been originating loans since 1997 and have never lost a client by being transparent about it.
Fees are quoted per transaction
Every loan scenario is different, and the factors that impact fees include who the lender is, the property type, loan amount, purchase price, loan type, loan-to-value, loan product, and more. The apples-to-apples comparison between us and anyone else is in underwriting and processing fees. Underwriting fees vary from lender to lender, and our processing fees also vary depending on whether we originate the loan as a correspondent lender or broker the loan. Generally, these fees are under $2,000 combined on any loan type or transaction type. Appraisal, credit reporting, verification of employment, condo certification, title and escrow fees, and recording fees are all within industry-standard limits and are not controlled by us.
Viral “Vic” Joshi, Mortgage Consultant | Straight Deal Mortgage | NMLS #244388 | CA DRE #01242935 | 510-655-2868 | vicjoshi.com
Straight Deal Mortgage is a DBA of Shane Stanfield Inc. Loan approval is subject to lender review. Rates and terms are subject to change and may not be available to all borrowers. Equal Housing Opportunity.