Profile picture for NBGI Financial

Are there any forms out there that would require borrowers to recoup the YSP for early pay-off?

I currently have a situation where the borrower is already trying to refinance his mortgage that we closed last month. Since the rates fell significantly from the time we closed the loan, he now wants the current market rate. Due to the premature pay-off of the loan, we will be obligated to pay back the SRP to the investor.

Due to the current market situation, I am projecting that this situation will arise quite frequently.

Are there any forms out there that would require borrowers to recoup the YSP for early pay-off?

Please advise.

  • January 08 2009 - Los Angeles
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Answers (17)

The investors that typically charge an early prepayment penalty for the first 120-180 days from closing don't offer any disclosures to that effect since doesn't apply to the consumer, just the broker.  You therefore have to create your own form and verbeage.

  • January 08 2009
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Profile picture for NBGI Financial
Thanks for your response Marcelo.

I'm actually looking to create my own form. I'm looking for a legal form that is already out there where I can base it off of with my own verbiage.  
  • January 08 2009
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you mean repay not recoup. Why would the borrower recoup the YSP?
  • January 08 2009
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Michael, I meant recoup our loss.

  • January 08 2009
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So you're essentially trying to fabricate a pre-payment penalty for loan which you will not be servicing? 


Huh?
  • January 08 2009
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A long shot . . but contact your investors to see if t they would allow you to insert a 120 - 180 day prepayment penalty into your notes.  This would only work on conventional loans . . . I have seen this done in the past but it is generally not an acceepted method.   You have to stay in contact with those customers who have loans that are high in risk to be refinanced.  The one thing that I've done is to try and capture the new refinance and try to do it with enough income to offset the loss of the early payoff penalty.  Breaking even is much better than losing!   One final thing . . . you could provide an form at closing that the borrower acknowledges that they will contact you should they have a need to refinance the loan within the first 120 days of the loan.  Informal at best. 
  • January 08 2009
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Profile picture for Warshaw Capital
I think a better solution wouuld be to have your LOs keep in contact with the borrowers after closing.  This way, if they do refinance yes you'll have to give back the YSP, but at least you'll make new YSP to replace it.  I doubt the banking dept. is going to look kindly on brokers trying to recoup YSP from borrowers.  Also, explain to your borrowers at closing that if they pay off early, you have to give back your commission.  This way they give you the business again.  They don't want to see you give back your hard earned money if you did a good job for them.
  • January 08 2009
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Offer par rates and have the consmers pay points/broker fee.
  • January 08 2009
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Bad idea- IMHO.

The no closing cost loan has inherently more risk to pre-pay early. The contact management recommendations are the way to go along with Andrew's pricing formula in declining interest rate environments.
  • January 08 2009
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Profile picture for Planners
You should be able to put something in your contract with your agent so they suffer as well as you do, but you can't modify a conforming note on your own.

One long shot. Have the borrower go back to the lender directly. In some cases, if the lender rolls the loan over themselves they will not charge you the penalty. I had this happen once when the lender contacted the borrower and closed the refi on the very last day of the penalty period, then tried to come back to me for a refund of the SRP. Needless to say, they didn't get it.

Good luck,

Tom
 
  • January 08 2009
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I doubt if any verbage would work on your own contract if the TIL says no prepay penalty. Even though it would not stand in court, it may influence the borrower not to look at refinancing until the 120-180 period is up. Then again, AA's answer is a good one by doing par plus fees. If borrowers refi now, it will be the last refi so you wont have to worry about it from here on out. 
  • January 08 2009
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verbage = verbiage, wording, telling it, etc
  • January 08 2009
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It's going to happen occasionally, it's one of the risks one takes when being in this business.

If you did not make excessive fees on the prior loan, then the fees you earn for the new loan should be able to help you pay the SRP to the first investor. I would much rather refinance the borrower to new loan and try to recover some of what would be paid for the early payoff than let them go somewhere else and lose it all........

Even though you might wind up in this transaction with little or no income form doing two loans, the borrower should be pleased with you for the service you provide, and maybe will tell others about what a great lender you are.
  • January 08 2009
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Bob, good point if you know what they are planning to do. If they go somewhere else and never tell you, well that's a problem. I will help you out so you dont have to post this: form = from :)
  • January 08 2009
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What Andrew said!
  • January 08 2009
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Ohh, and to answer the question more directly; what you are proposing is absurd and illegal.
  • January 08 2009
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Thank you for all your advices. I think I already know which direction I will take.
  • January 09 2009
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