Ethics and Percentage Earned

I saw two post and thought combining them might be an interesting topic. My industry Mortgage brokering charges anywhere from 1% up to 5%. Either way it is disclosed to the consumer so do you think it is ethical to charge as much as you can as long as you tell the client what you are charging? Stop and think before you answer this one please.

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Originally Posted by Jorel

...do you think it is ethical to charge as much as you can as long as you tell the client what you are charging?

If you let me know from the beginning that percentages varied from 1-5% and that I would be paying 5% if I went through you then I think that is ethical.

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Originally Posted by fred

If you let me know from the beginning that percentages varied from 1-5% and that I would be paying 5% if I went through you then I think that is ethical.

So are you saying that in order to be ethical from the begining, sales people that charges 5% for their service should tell his potential customer I charge 5% but you can go to elsewhere and it could be anywhere from 5 to 1 percent?

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Originally Posted by Jorel

So are you saying that in order to be ethical from the begining, sales people that charges 5% for their service should tell his potential customer I charge 5% but you can go to elsewhere and it could be anywhere from 5 to 1 percent?

Disclosing upfront where you make your money and how much you'll make seems logical and ethical.

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Originally Posted by fred

Disclosing upfront where you make your money and how much you'll make seems logical and ethical.

Fred, first off lest me express my gratitude for your willingness to answer this.

I wonder if this seems logical and ethical, why is it that other businesses do not disclose this information?

Banks who do the same thing as Mortgage brokers do not disclose this information.

The car salesman does not disclose how much profit he is making when he sells a car.

The hospital does not tell you how much profit they will be making when it comes to health care, come to think of it I can not think of one profesion that does. Can you?

Does this mean there is not one logical ethical profesions?

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Originally Posted by Jorel

Banks who do the same thing as Mortgage brokers do not disclose this information.

Banks do disclose this information in a Good Faith Estimate.

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Originally Posted by fred

Banks do disclose this information in a Good Faith Estimate.

I am not sure where you received your information, but I feel you are being mislead check out http://www.bankrate.com/cnn/news/mor...roker_a3. asp

the last paragraph talks about overages that banks charge and how they are not required to be disclosed.

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Originally Posted by Jorel

I am not sure where you received your information, but I feel you are being mislead check out http://www.bankrate.com/cnn/news/mor...roker_a3. asp

The Good Faith Estimate information was from Wikipedia [A good faith estimate must be provided by a mortgage lender in the United States to a customer, as required by the Real Estate Settlement Procedures Act - or RESPA The estimate is of the fees due at closing and must be provided within three business days of applying for a loan.]

Thank you for pointing out the article on yield-spread premiums and overage abuses. Here are two paragraphs from that article that I feel relate to ethics:

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Overages are the counterpart of the yield-spread premium of the broker or correspondent lender. Both are used to exploit the borrower's ignorance. In one case, the borrower is ignorant of the rebate paid by the wholesale lender to the broker or correspondent lender. In the other, the borrower is ignorant of the rebate the lender is willing to accept. Overages are not subject to any disclosure requirements.

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Yield-spread premium compensation is not abusive if the borrower knows what is going on. A borrower dealing with an upfront mortgage broker is told what the broker's fee is and is given a choice as to how it is paid -- in cash or as yield-spread premium. The great majority of brokers, however, don't offer this choice because they can make more if they keep the premium to themselves. The borrower may learn about it in the documents he or she receives, but disclosure comes late and it is extremely unclear.

What are your feelings about this?

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Originally Posted by fred

The Good Faith Estimate information was from Wikipedia [A good faith estimate must be provided by a mortgage lender in the United States to a customer, as required by the Real Estate Settlement Procedures Act - or RESPA The estimate is of the fees due at closing and must be provided within three business days of applying for a loan.]

Thank you for pointing out the article on yield-spread premiums and overage abuses. Here are two paragraphs from that article that I feel relate to ethics:

What are your feelings about this?

There are good reasons for having these. But more often than not they are used in the wrong way. And the general public does not know about it, just like the general public does not know about what a retail stores pays for a product wholesale.

In the GFE (good faith estimate) it also does not say what the yeild spread is or the overage is . So this is actually not disclosed. Yeild spread is disclosed later in the loan process but at a time when it is buried with several other documents. The thing is Banks never have to disclose overages!

So it makes it hard for the customer to actually see everything.

So why is it that one should disclose and not the other? Does that mean that one is being ethical and the other is not?

Or why is this in one industry (actually just a few) and not every industry?

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Originally Posted by Jorel

There are good reasons for having these. But more often than not they are used in the wrong way. And the general public does not know about it, just like the general public does not know about what a retail stores pays for a product wholesale.

Can you compare overage and YSP abuse to retail pricing?

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Originally Posted by Jorel

Or why is this in one industry (actually just a few) and not every industry?

Apparently someone feels the general public needs protection from lending practices "used to exploit the borrower's ignorance". Don't you?

Ethics and Percentage Earned

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