#WhackedOutWednesday – This week we’ve discussed various compensation set ups, and ways a broker could have his LO’s paid. The “how to” on a borrower paid transaction is often a question I get. In reality there is a right and wrong way to price these out as a result of comp laws indicating that no credit on a borrower paid transaction can cover LO comp. Hence the “borrower paid” name. However, many LO’s and Broker’s get this wrong all the time. Today I wanted to break down the easiest way to structure these.
Step 1 on a borrower paid transaction is figuring out the total costs. You can’t in theory pick a rate until you know this “dollar amount”. Or at least close to it. So add up all your title, impound, government recording, flood certs, underwriting fees, appraisals, inspections and any and all 3rd party fees, upfront. Once you have a number go on to step 2.
Step 2, price the loan out with your lender as a borrower paid transaction. When looking at the credit for any given rate, it’s best to pick a rate that doesn’t “exceed” the total dollar amount in costs. You can be within a few grand at most, but the objective is to be as close as possible. Otherwise any 3rd party costs not covered by credit would need to be paid by the borrower or covered by concessions.
Step 3, input your commission. The point in many cases of doing a borrower paid transaction is to “lower” the compensation from your said “Lender Paid Compensation” (LPC) selection at any one lender. Many make the commission equal to or less than the actual costs on the loan. Which for the most part shadows the credit for the rate.
In a real life example, the total costs are 4200 on a loan (including impound set up) and the credit for the rate is 4000. Then the LO chooses to make 4000 and have the small left over 200 dollars from costs not covered by the credit. Making the total in costs on the loan 4200. Somewhat a rob Peter to pay Paul scenario, or “magic show” as I describe it. If you find you’re accurate in estimating costs upfront on a borrower paid transaction, you will be able to price and sell this type of loan to anyone. And WIN the deal with any shopper.
This week I am doing data entry into a CRM and expanding my Broker network big time. I would welcome helping you! If you own a Mortgage Brokerage or know someone that does, refer them to the JUICEman. I encourage others to Join Us In Creating Excitement about mortgages, and make this stuff fun. I look for great broker’s that want to excel at helping others with mortgage loans. As a wholesale AE, my role is to help facilitate these home loans to the closing table. I act as an intermediary between the LO/Broker and the underwriter and funding teams. The more accurate the 1003 and structure of the loan upfront, the faster loans close. Let’s do business together this year, in fact, you can “try before you sign up.” With great rates and 1 day turn times, we are poised to position ourselves to help many broker’s grow their business this year. Why not you? – Shoot me a message on Facebook, I’ll send you a rate sheet and submission form. You can experience our stellar service first hand and then sign up! #SellWell
One thought on “Whacked Out Wednesday – Borrower Paid Calculation”
Thank you for posting this. I haven’t been able to wrap my head around this until now.