I always hear a lot of talk about YSP and how it's now going to be outlawed and possibly kill ALL of the mortgage brokerage business. I wonder if most people have any idea what this stuff is that's so terrible.

Here goes.

Two different rates are available to the customer on a 30 year fixed. Let's use a $100,000 mortgage as an example.

4.875%   and    5.25%

If the client selects 4.875% at the closing he/she will pay .125% in points, or $125. That's as close to a par rate as I could get. Par is a rate where there is no charge to acquire the rate. As a broker I have not yet made any money, so I'm going to charge 2.022 points at the closing, or $2022. The P&I is $529.21 

You'll see where that number comes from in a minute, as i'm trying to compare apples and apples, as closely as possible.

If the client selects the 5.25%, at the closing they will pay no points, but the lender/investor will pay me a YSP (yield spread premium) of 2.022 points, or $2022. The P&I is $552.20, a difference of $22.99 per month.

If you're wondering what happened to the $125, I ate it. I don't try to get that exact in my pricing, so okay the customer benefits.

If you divide the $2022 by $22.99 per month than the customer retrives their money in 87 months, or 7.33 years. They do have a lower payment during that time and may or may not benefit from potential tax breaks.

Okay, that's it! Fairly boring you may say, you got me!

A couple of observations;

These are real rates from yesterday.

These rates may or may not be below what you can get at your local bank.

Let the customer be able to choose, please, not your Congressperson! 

But,

I do not believe that of and by itself outlawing yield spread premiums will end mortgage brokerage!