YSP or yield spread premium is commission paid to a broker’s company by a lender based on the type of loan product sold, the terms of the loan, the interest rate, and the volume of loans a company sells with that particular lender. It is not a secret and in fact mortgage brokers have been required to disclose YSP on the good faith estimate (GFE) in most states for quite a long time. My company has required me to disclose it on the GFE as a percentage of the loan amount or as a dollar amount since I began working in the mortgage industry. In fact if I fail to disclose any fee associated with the loan I forfeit my entire commission to the borrower as per my company’s policy.
Why is this important, why is HUD wanting to require it to be disclosed with more onerous paperwork and why is the Secretary of the Treasury and Congress discussing banning YSP?
One reason is banks and certain lenders do not have to disclose it. And many banks, lenders, and less than honorable inexperienced mortgage brokers were making exorbitant commissions over the past few years on niche products such as pay option ARMs and subprime loans. The good news is with the exception of the banks most of these lenders and brokers are no longer in business. But the damage is done and the pendulum is now swinging far to the other side (think airport security after 9/11 when nail clippers were deemed a weapon and confiscated). Yield spread premium allows borrowers to finance some or all of the cost of their loan (no closing cost loans) by accepting a higher interest rate and paying no upfront fees for their mortgage. YSP is a very valuable tool in limiting the out of pocket cost to borrowers to purchase or refinance a home. It has its place in the lending arena and should remain available to borrowers as long as it is disclosed and explained to the borrower by a reputable, experienced, licensed loan originator.
Call the David M. Damare’ Team anytime with questions about this or any other topic in the news relating to mortgage lending.
“Mortgage Lending is Our Business: Customer Service is Our Passion.”
Thank you for the opportunity to serve you and your clients. David. 919.851.0999.