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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. - 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. - 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? - 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. - 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? - 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. - 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/mortgages/20070405_yield_spread_premium_mortgages_broker_a3. asp

the last paragraph talks about overages that banks charge and how they are not required to be disclosed. - by Jorel
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.[/quote]
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? - by fred
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? - 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?

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? - by fred
Can you compare overage and YSP abuse to retail pricing?
Yes, and I am sure you are smart enough to do this also, aren't you? So I won't delve into that.

Apparently someone feels the general public needs protection from lending practices "used to exploit the borrower's ignorance". Don't you?
If the public needs this protection from lending practices then why don't they get this same protection when purchasing other items. Do you think the general public is only ignorant when it comes to lending practices? - by Jorel
Yes, and I am sure you are smart enough to do this also, aren't you? So I won't delve into that.
I don't feel lender abuses can be compared with retail pricing. I am open to reading how you think the two compare. Will you share your viewpoint?

If the public needs this protection from lending practices then why don't they get this same protection when purchasing other items.
In what other purchases do you feel the public isn't getting the protection they need? - by fred
I don't feel lender abuses can be compared with retail pricing. I am open to reading how you think the two compare. Will you share your viewpoint?
If you don't feel lender abuses can be compared with retail pricing,
I do not believe you would understand my viewpoint. So I wont waist your or my time with it.

In what other purchases do you feel the public isn't getting the protection they need?
I have already covered this in a previous post and believe it to be a waist of time to restate it. - by Jorel
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.
When are you disclosing the charges Jorel? - by SpeedRacer
Ethical =
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.
Unethical =
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.
- by saltydog
When are you disclosing the charges Jorel?
Part of my presentation actually covers yeildspread and how I get paid. I then let them choose how they want to pay me. And explain the pros and cons of each part of it. I believe this builds rapport by explaining the process. However some people are less than interested and I ask them if they would rather have a lower interest rate or prefer to not pay any points. But if you wanted a more direct answer, when I first meet them.

BTW SpeedRacer why do you ask? - by Jorel
BTW SpeedRacer why do you ask?
By my standards when you disclose the charges changes the answer to your question; 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? - by SpeedRacer
Timing is everything. Retailers don't tell you the price of the product after you've decided to buy it. ;thd - by fred
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?
I think you can charge as much as you want. If your customers don't like your prices they can use someone else. ;tmt - by Thomas
I think you can charge as much as you want. If your customers don't like your prices they can use someone else. ;tmt
I agree, charge as much as you want and let the borrower shop around if he or she doesn't like it. I also agree with previous posters, don't wait until it's too late to let the borrower know what the bottom line is going to be. - by BossMan
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.
What an interesting question...I stopped to think about this one. Although not in the same industry we all deal with ethics in whatever industry we may be in...I run an ISO for a merchant account company - we compete with banks as well as other ISO for countless merchant service companies.

I beleive that ethics start with customer service - our prices are sometime higher than those of my competitors, I'm COMPLETELY upfront about those fees, but I also show them where we beat our competition. It's give and take.

Now, in your industry - there HAS be a reason someone would pay 5%, what is it? What do they get in return for the higher percentage rate?

Being totally upfront with my clients all the way through our sales process eleminates all possibility of ethical liability.

As I said - excellent question...I'm enjoy my new found forum and look forward to learning lots while I'm here. Thanks to everyone! - by brandonmorris
Now, in your industry - there HAS be a reason someone would pay 5%, what is it? What do they get in return for the higher percentage rate?
If anyone here is in lending correct me if I'm wrong but a mortgage broker can charge as much as he wants up to the maximum allowed by the bank as long as he can sell it to the customer --- with no added value to the customer whatsoever. - by Houston
If anyone here is in lending correct me if I'm wrong but a mortgage broker can charge as much as he wants up to the maximum allowed by the bank as long as he can sell it to the customer --- with no added value to the customer whatsoever.

It could be that the customer/client had poor credit and willing to pay increased percentages just to close the deal. Perhaps it's a timing issue and the customer/client needs to close the deal ASAP, or maybe customer service - I'd pay extra to KNOW that when I needed a go to person I can call and talk to someone I know and/or trust - I'm not in the industry but these to me may be added value to the customer. I guess that's the reason I ask is just to find out if there is an added value for the increased percentage - by brandonmorris
It could be that the customer/client had poor credit and willing to pay increased percentages just to close the deal. Perhaps it's a timing issue and the customer/client needs to close the deal ASAP, or maybe customer service - I'd pay extra to KNOW that when I needed a go to person I can call and talk to someone I know and/or trust - I'm not in the industry but these to me may be added value to the customer. I guess that's the reason I ask is just to find out if there is an added value for the increased percentage
A consumer can pay as much as they want for anything including a loan and mortgage brokers can charge as much as they want within prescribed limits. - by Houston
Timing is everything. Retailers don't tell you the price of the product after you've decided to buy it. ;thd
Fred I don't see the price changing after the fact. I see this as Bank A offers the borrower a rate of say 6%. The mortgage broker calls the borrower and tells them they were approved at Bank A at a rate of 7.25% and pockets the yield-spread premium. If this was disclosed upfront and agree upon then the borrower could decide if he wanted to pay the points or suffer the higher interest rate over the course of the loan. - by SpeedRacer
to me you have to be consistent. I think you run into problems if you do some at one percent and others at 3 etc... i don't know how ethical it is to try to knock off some peoples heads and not others..... - by benjamin-benjamin
to me you have to be consistent. I think you run into problems if you do some at one percent and others at 3 etc... i don't know how ethical it is to try to knock off some peoples heads and not others.....
I don't think I agree completely - let me caveat by saying, I agree in consistency - but if you have one client that all they have to do is fill out the sales app, turn it in and your done and you have another that you have to jump through burning rings of fire to get the account for whatever reason, they need to pay for it. Perhaps have a set rate for "good or easy" clients and one for "difficult" clients.

Just my two cents :) - by brandonmorris
I don't think I agree completely - let me caveat by saying, I agree in consistency - but if you have one client that all they have to do is fill out the sales app, turn it in and your done and you have another that you have to jump through burning rings of fire to get the account for whatever reason, they need to pay for it. Perhaps have a set rate for "good or easy" clients and one for "difficult" clients.

Just my two cents :)
but then where do you draw the line on "difficult" and "easy" I can promise you the as time goes on you will have more and more people you will catorgize as difficult.... - by benjamin-benjamin
but then where do you draw the line on "difficult" and "easy" I can promise you the as time goes on you will have more and more people you will catorgize as difficult....
I agree...where do you draw the line - you have to have a MEASURABLE way to tell difficult & easy (now that is something I couldn't know as I'm not in that industry)...but I charge for MY time and - I believe it IS ethical as well as business-minded to charge for your trouble/labor. - by brandonmorris
Fred I don't see the price changing after the fact. I see this as Bank A offers the borrower a rate of say 6%. The mortgage broker calls the borrower and tells them they were approved at Bank A at a rate of 7.25% and pockets the yield-spread premium. If this was disclosed upfront and agree upon then the borrower could decide if he wanted to pay the points or suffer the higher interest rate over the course of the loan.
First off if bank A offers a rate of 6% then the mortgage broker can attually get that rate cheaper. Why? Wholesale/Retail.

Also. Bank A may have some conditions like must be owner occupied, must be at same job for last two years, can not be self employed. Must use credit score of both husband and wife. I could go on but I won't. The bank does not tell you this, the mortgage broker will.

Now Joe borrower goes down to bank and gets denied. Because he is self employed or his wife has bad credit. He now feels bad ... and does not get the money to build a pool for his family.

The mortgage broker knows this ahead of time and saves the borrowers the time and grief of having to go to this bank and finds another lending institution that is fine with all these circumstances but the borrower has to pay a higher rate.

All the differences are never disclosed in the media, that would be to boring for the average Joe to read or watch so they skip that part. And say look at these bad mortgage brokers. Yes there are some, but there are bad priets and bad firemen and bad judges. I am sure in your field there are less then ethical sales people as well. - by Jorel
The mortgage broker knows this ahead of time and saves the borrowers the time and grief of having to go to this bank and finds another lending institution that is fine with all these circumstances but the borrower has to pay a higher rate.
Nobody works for free and the clients have to know you're getting paid somehow. Do clients ask where mortgage brokers make their money? Do mortgage brokers typically volunteer this information? - by Gilbert
Good things are seldom cheep and cheep things are seldom good.

If your upfront about the % and the customer sees the value then thatís fine.thmbp2; - by Tony Dunne
Do clients ask where mortgage brokers make their money?
No, people are more concerned with themselves than they are with other people. Most people I have worked with only complain that it is too much

Do mortgage brokers typically volunteer this information?
No, my lawyer advises me against volunteering information;bg

But it is covered in the HUD1 when the client signs the contracts. But 40% of people don't read their contract.

I have never, oops rarely purchased a product where the sales person tells me how they make their money. I just assume it is off of commision. - by Jorel
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