Thank you for inviting me to testify today.
I am 43 years old and live in Fort Washington, Maryland. I have two children, Ebony, 22; and Zachary, 11. In addition, prior to their recent deaths, my elderly parents lived with me. I have worked hard and overcome many obstacles to purchase my own home.
I grew up in Prince George’s County, Maryland. My family lived in a neighborhood that was not racially mixed. In fact, we were the first blacks on the street. In 1974, I received a general equivalency degree and went to work for Prince George’s County Department of Social Services. In 1979, I began working for the federal government as a clerk/typist. Over the past 20 years I have worked my way up to my current position as a Supply Management Representative for the Department of General Services.
Prior to purchasing my own home in August 1997, I struggled financially. I was a single parent and also helped support my parents. I began to think about moving and buying a home because the neighborhood in which I lived had become a "drug haven." I felt that it was important for my children and parents to get into a new environment that offered safety and security.
In June 1997, after house hunting for close to a year, I finally found a house that I wanted. I signed a contract to purchase the house for $159,750, but was told by my real estate agent that I needed to obtain my own financing. Because I was inexperienced with real estate transactions, I engaged the services of Homebuyers Mortgage Company, a mortgage broker located in Prince George’s County, and asked them to find me a 7 % or better fixed rate FHA mortgage loan, a rate equal to what another lender – Countrywide Home Loans – was willing to offer me.
The closing on the home was scheduled for August 29, 1997. As the settlement approached, I become increasingly nervous because Homebuyers would not confirm that it had located a mortgage loan for me. As late as just two days before the closing, Homebuyers told me that a firm commitment on financing was not yet available. Even though mortgage rates were low and favorable in August 1997, on the day of closing, Homebuyers finally told me that it had arranged a 7% adjustable rate FHA insured mortgage loan through Inland Mortgage Company, which is now Irwin Mortgage Company. Homebuyers also told me that Inland was providing me with the best rate and most favorable financing terms that they could secure. Reluctantly, and believing that I had no other options, I entered into the mortgage loan transaction.
Homebuyers charged me extraordinary fees and points. My HUD_1Settlement Statement reveals that Homebuyers charged me the FHA maximum 1% origination point __ $1,544.00 __ plus loan discount points of 3% __ $4,736.00. On top of these fees, Homebuyers also collected a Yield Spread Premium from Inland of nearly 3% __ an astonishing $4,538.87. In other words, I paid 3 discount points to reduce my interest rate and the broker was paid 3% by Inland to increase my interest rate.
Almost a year after I entered into the mortgage loan transaction, I learned that Homebuyers had not obtained for me the most favorable financing terms. In fact, I learned that Homebuyers was paid the $4,538.87 Yield Spread Premium by Inland Mortgage solely because Homebuyers was able to deliver my mortgage well above par __ that is, Inland would have been willing to underwrite my mortgage loan at a lower interest rate. Moreover, I learned that Homebuyers’ Yield Spread Premium was increased because Homebuyers delivered the mortgage loan with a short lock in period. Irwin’s rate sheet, in fact, shows that I qualified for the same loan at about a 5 ½% interest rate with no Yield Spread Premium to the broker.
What truly amazes me is that for the small amount of work performed for me, Homebuyers collected more than $10,800, including the Yield Spread Premium. Moreover, had I known that Homebuyers had secured for me a mortgage with an above par interest rate, I would have secured other financing.
Eventually, because the payments under Inland’s adjustable rate mortgage were becoming prohibitive, I engaged the services of another mortgage broker, Allied Mortgage, to assist me in the refinancing of my loan. I have since learned that this transaction also included the payment of a Yield Spread Premium, and resulted in my receiving another loan at a higher interest rate than I qualified for.
After completing these two mortgage transactions, I learned what Yield Spread Premiums are and how they affected my mortgage loan and increased my monthly mortgage payments. As a result, I recently refinanced my home a second time, but this time directly with a lender. Because of my experiences with mortgage brokers and Yield Spread Premiums, I will never go to a mortgage broker again.
Thank you again for inviting me and for your attention to these important issues.
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