Yield Spread Premiums (aka  YSP's)

Mr. Bailey,

I have been in the mortgage for 21 years.  The entire time as a broker.  13 years as an owner.  There is something missing from your Oct. 19 article which needs to be addressed.   YSP's are required to be disclosed up front on the financing agreement, broker agreement and good faith estimate by brokers.  Any YSP is already calculated on the Truth in Lending (which shows the true annual percentage rate), which is based on rate and fees. 

Correspondents are essentially brokers who close a loan in their name, and then sell it to the investor, at an already locked in rate.  They know exactly how much YSP they will earn (that does not have to be disclosed to the borrower).  How do Correspondents and Lenders get YSP?  By charging a higher rate, go figure. Correspondents are not required to disclose any YSP or Service Release Premium or other behind the scenes Paid Outside Closing (P.O.C.) earned fees because they masquerade as a Lender.

Lenders (who close loans and then sell in bulk to Fannie or other investors) are also not required to disclose any YSP or Service Release Premium or other behind the scenes (P.O.C.) earned fees. Remember, these fees are paid out of thehigher  rate (also known as the coupon).  The true Lenders themselves are nothing but middle men, getting paid  at closing and then again outside of closing by the institutional investors (Fannie Mae, Wall Street, etc.) when they deliver the closed loans (in whatever form).  Again, this is in addition to any fees collected at the loan closing.  We are all middle men.  They get paid the same way as us brokers.  Even Fannie Mae and HUD offer YSP's  to help keep closing costs down.  Our borrowers are well aware that we do not work for free, after all who does?  We explain how we can get paid in several ways, and present the rates and fees/ points up front, and leave it up to the borrower to choose the rate and points (if any) that works best for them.  We offer true no point loans, the borrowers  always understand that we get paid from the investor when we assign the loan to them.  Without no point loan products, the borrowers will see closing costs  increase dramatically. 

We offer a real and needed service in the community.  There is a local branch of a very large National Bank about a mile from my office.  They offer mortgages.  They also have a huge Wholesale department that works only with Brokers and some Correspondents( who are brokers anyway).  We can regularly beat their "retail" pricing using the Wholesale department owned by the very same bank. 

I ask you.  Do you think the big players make anything "on the back"?   You bet they do.   Does it have to be disclosed?  No.   Is it a YSP.  Yes. 

The do gooder politicians such as Barnie Frank and Hillary are both educated people... but they are ignorant regarding the mortgage business.  Do they mean well?  I think they do.  Do they play politics.  I think they do.  Do they know what the heck they are talking about.  After reading and hearing their comments on this Fremont style mess, and their proposed "reforms" I say no way.  Doing away with YSP's will have a very negative effect in the marketplace, by restricting the options brokers can offer to borrowers, and forcing borrowers to pay higher closing costs.  Do you think the proposed law will effect the "Lenders" who get YSP on almost every deal, that never is disclosed to the borrower?  Me either. 

Are you aware of the "steering" of borrowers to sub prime products and excess fees charged by some of the the top Lenders in the USA?  And the multi-million dollar settlements from the same lenders when they got caught?  Lender's must  acknowledge blame for this mess too. Brokers are getting a bad rap here. 

I hate to cut this short, but I am running late for an appointment.

Have a nice weekend.

Burton Jamison, 
Stevensville, MD
Fix-My-ARM.net