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Mortgage Brokers Fight For Yield Spread Premium
11Mar11
The National Association of Mortgage Brokers (NAMB) yesterday filed a lawsuit against the Federal Reserve regarding its forthcoming ban of yield spread premiums.
Effective April 1, yield spread premiums paid to mortgage brokers, along with loan officers employed by depository institutions, will effectively be banned.
Yield spread premiums (YSP) are paid out to mortgage brokers and their loan officers by banks and lenders when they sell borrowers a mortgage rate that is higher than what may have actually been qualified for.
For example, a borrower could be eligible for a rate of 4.75 percent on a 30-year fixed mortgage, but the broker/loan officer may sell the borrower a higher rate, such as 5.25 percent.
The resulting commission for selling the higher rate is what the Federal Reserve has taken issue with – mortgage brokers argue that the YSP can also be used to cover upfront closing costs, making homeownership more attainable.
But some mortgage brokers and loan officers double-dip, meaning they take YSP on the back-end, while also charging a loan origination fee in the front.
This double commission also lands the borrower in a higher monthly mortgage payment, increasing their chance of default.
The Fed’s final rule says a loan originator may not receive compensation based on the interest rate or other loan terms, and prohibits those who receive compensation directly from the consumer to also receive compensation from the lender or another party.
http://www.thetruthaboutmortgage.com...pread-premium/
11Mar11
The National Association of Mortgage Brokers (NAMB) yesterday filed a lawsuit against the Federal Reserve regarding its forthcoming ban of yield spread premiums.
Effective April 1, yield spread premiums paid to mortgage brokers, along with loan officers employed by depository institutions, will effectively be banned.
Yield spread premiums (YSP) are paid out to mortgage brokers and their loan officers by banks and lenders when they sell borrowers a mortgage rate that is higher than what may have actually been qualified for.
For example, a borrower could be eligible for a rate of 4.75 percent on a 30-year fixed mortgage, but the broker/loan officer may sell the borrower a higher rate, such as 5.25 percent.
The resulting commission for selling the higher rate is what the Federal Reserve has taken issue with – mortgage brokers argue that the YSP can also be used to cover upfront closing costs, making homeownership more attainable.
But some mortgage brokers and loan officers double-dip, meaning they take YSP on the back-end, while also charging a loan origination fee in the front.
This double commission also lands the borrower in a higher monthly mortgage payment, increasing their chance of default.
The Fed’s final rule says a loan originator may not receive compensation based on the interest rate or other loan terms, and prohibits those who receive compensation directly from the consumer to also receive compensation from the lender or another party.
http://www.thetruthaboutmortgage.com...pread-premium/
Maybe for the short-term, until the borrower goes broke.
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