This morning, the U.S. House of Representatives Financial Services Committee voted on H.R.3915, The Mortgage Reform and Anti-Predatory Lending Act of 2007.
While legislators attempt to erect a defense shield against mortgage lending abuse, this current law strikes wide of the target and is sure to inflict collateral damage upon the very group it seeks to protect.
YSP
One of the primary thrusts of the Act is to outlaw Yield Spread Premium (YSP). This is the mechanism by which consumers are able to obtain zero point and no cost loans. Borrowers elect a slightly higher interest rate in exchange for eliminating points and other closing costs. YSP is a rebate—a Premium if you will—paid by the lender to the broker for the higher interest rate (the Yield) on the loan. The amount of that premium is determined by the Spread between current interest rates and the rate elected by the consumer. Mortgage brokers must disclose the amount of YSP.
It’s a simple trade-off and a valuable tool for consumers. Without YSP, buyers with limited cash may have to postpone purchasing a home. Existing homeowners might be unable to refinance to a better loan if they had to pay all their fees and points out of pocket.
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Actually, I have always looked at it as I charge what I do for the owrk I do. Anytime I get a pushback on it, I point out to the customer that they obviously don't work for free, because I have their income documentation, and they don't see the 3 or 4 files I threw away for the one that funds.
It's up to them to pay the cost of obtaining financing, or the lender can do it, but it's not free.
If they get a quote from a bank, it's usually a higher rate and 2 or 3 points up front... so they usually come back quickly.