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Show us what you're workin' with!

Hey y'all. Anyone heard of a "Yield Spread Premium"? Probably not but you may be PAYING for one! A Yield Spread Premium (YSP) is the cash rebate paid to a mortgage broker based on selling an interest rate ABOVE the wholesale par rate that the borrower qualifies for. So a YSP compensates a broker for charging you a higher rate than you actually qualify for. Nice huh? Well there is quite some debate going on right now about YSP's because the U.S. House of Representatives are considering a bill that would outlaw YSP's.

While brokers are expected to disclose their YSP, if they have one, it's typically found NOT in the debit or credit column of your property's settlement statement but as a line item of it's own in the ‘title' column, many times its listed as POC (paid at closing) and while it's TRUE you aren't ‘actually' paying it, you are in the way of a higher rate than you were able to actually get.

I review each and every one of my clients settlement statements (HUD's) as soon as they are prepared by escrow BEFORE closing to find this kind of stuff. Take a look back at your HUD(s) and let me know if you find a YSP/POC total!

Thankfully brokers are forced to disclose these things (hence the blog title) but in the future YSP's may become a distant memory.

PS: There are instances where a YSP is really the only way a broker can get compensated from what I understand and I would appreciate any mortgage brokers commenting here on this issue! Thank you in advance!

Posted by Keely Jared on 11/09/2007 08:52 PM

Comments (11)

ysp, hud, settlement statement, poc, mortgage broker, brokers, lenders, predatory lending, namb

11 Comments on Show us what you're workin' with!

NOV

2007

Whoa, Keely this is a post that is based on bias and lack of true education. I was hoping that you were a mortgage broker, but when I saw that you were a Real Estate Agent, I saw red. Yield Spred Premium helps consumers in more ways than one. The bill being considered in the house is irresponsible and is based purely on the political ramifications of 30 second soundbites. It is banking on the consumer being uneducated on the issue.

Here is the truth - Banks do not have to disclose Yield Spread Premium, Loan Officers that work for Mortgage Brokers do. This is in spite of the fact that loan officers that work for banks work on commission. The true issue with YSP is that there is not a level playing field and the consumer has no way of comparing the costs assoiciated with choosing loan options they get throuh a bank vs. a Mortgage Broker. This means that the HUD Statement that you see for loans originated via banks are not a true reflection of the cost of the loan.

YSP helps consumers save cash. The trade off is a higher interest rate, but cash is king. There is no one size fits all loan scenario. Sometimes it makes sense to have a higher rate and save cash, other times it makes sense to pay the points up front and go with the lower interest rate.

Only a professional Mortgage Professional who takes the time to understand the needs and goals of a consumer can effectively present the different options to a client so that they can make the right decision based on their individual situation.

A Real Estate Agent who is not properly educated in the aspects of the clients finances is not qualified to give this advise.

Thanks for your post Kate but I respectfully disagree with your statement that my post is biased or lacks education. I'm simply communicating my opinion on YSP's and while I differ on this matter from your opinion, that in no way makes mine biased or uneducated thank you very much! ;-)

I agree that there is no 'one size fits all' but if YSP's are all good for us commoners than the bill before the House wouldn't be up for review, in my opinion.

If you have any facts via link you can provide to tell me where I'm wrong I'd appreciate the feedback!

So Keely, How about we make a post to consumers about why a realtor might be showing a client a particular home. Is it because it is what the client is looking for or because you, the agent, will make more commission if they by that home as compared to the identical home at the same sales price on the next block? Should you not have to disclose to the buyer that "Mr. & Mrs. Buyer this is a lovely home and if you buy it the sellers will pay me, your agent, and additional percent or and extra 10k....Oh but I know it isn't as nice as the house around the corner but you need to buy this house because I will make more money?

Now do I believe all agents work this way, NO. And neither do all mortgage brokers work the way you are implying. As Kate said, you are extremely under educated in the mortgage business which is a shame since you claim to be a real estate broker.

Sean Allen

Good point you bring up Sean. With the market as soft as it is, I often see commissions at and above 3% (and yes below). I would consider it unethical to steer buyers to those houses that would pay me a higher commission. Therein lies my point, YES those things should be disclosed and NO they shouldn't be a reason why I select THOSE listings for my clients.

Where do I say all mortgage brokers work this way (steer their clients to loans that get the lender a YSP - if that's what you're claiming I'm purporting)? Sorry but I never said that - nor do I think it.

Holding my own,

Keely

Oh boy, here's what I get when I search for YSP in the AR blogs - again not saying these are reflective of MY opinion but the first three that come up are doozies!

http://activerain.com/blogsview/143811/Series-of-Articles-on

http://activerain.com/blogsview/240438/I-heard-about-new

http://activerain.com/blogsview/24009/Prepayment-penalties-suck

Hey Keely,

Thanks for responding. I know in Florida we have to disclose the yield spread on multiple disclosures and then AGAIN three days before the closing. What we have to disclose is the actual Dollar amount not a percent range. We also have to RE-Disclose it at the closing on a new GFE. I can't comment on other states, but I can tell you that it overly disclosed here in our state, which is fine. I about got into an argument with a client on Monday over yieldspread. They came to me on Wednesday 10-31-07 desperate because their first choice lender said that they would not be able to close their loan. The borrower was adament that he was not going to pay fees, so i priced it paying 2ptsof yield spread. My rate was 6.5% on a second home and the previous lender was at 6.375%. He got mad when I told him what I would make on the back, but when I explained that I worked on his loan Halloween night till 11:00pm so that I could submit to the lender, I paid for a new appraisal because his appraiser wasn't returning my call and told him I would have the loan closed the next week (today). He finally said OK. The deal would not have happened if I was not able to make yiledspread. And this wasn't like the guy didn't have the money. He was buying a new condo for 813k and financing 417k. He had the money, he just didn't want to spend it.

Anyway, Yield Spread serves a very good purpose to buyers .... especially first time homebuyers who typically are hurting for money.

Sean Allen

EXACTLY! Now see right there is what I was looking for, in that instance it would seem to me that a YSP benefits the buyer. I know examples like this are out there. Thank you for providing that example Sean.

NOV

2007

Keely,

To say that a bill would not be put in-front of congress unless it were the right thing for "commoners" is naive. This issue is about the banking industry lining the pockets of legislatures in terms of campaign donations. It's about lobbying and is in every way bad for "us commoners". If the bill passes as it stands, the consumer will lose the opportunity to make a choice on how they pay for their mortgage. Stated Income loans, legitimately used by the educated self employed will disappear and with it we will see a decline in real estate values.

Here is a blog post that I wrote on the issue several weeks ago.

http://activerain.com/blogsview/250368/It-s-Clear-Who

I am in favor of finding ways to eliminate the abuse of YSP through complete disclosure of ALL parties involved in originating mortgage loans - (this includes banks). While I appreciate your point of view, your post and your subsequent comments indicate that you have not really spent the time to fully research and understand the impact of the bill that is rushing through congress.

This is a political year. The mortgage crisis is a hot media issue and a political hot button. Our elected officials are doing what it takes to keep their jobs, regardless of whether it's right for the consumer or not.

I agree with you here Kate and appreciate you asserting your opinion without chastising mine. I find it unfortunate that brokers are the only ones forced to disclose the way they are paid as it would seem to give banks an unfair advantage via public perception.

I wish that I could say that the YSP's always work the way Sean's example showed, unfortunately 99% of the HUD's I review that show a YSP/POC tend to be deals where there are exorbitant other fees which lead me to believe that many times a YSP is used against a client's best interest. Getting paid isn't an issue as you deserve to be paid, but is 5% an exorbitant commission in your field to you? I think so.

I get competing information from all of the governing bodies that we brokers are a part of (I am a Director with the local division of NAR as well and get figures from them that conflict with those of say the Seattle Times). Last I heard it was more than 30% of A paper clients that were on subprime mortgage products - very disconcerting. Again, not saying you participate in those types of practices but the mortgage industry has egg on it's face exactly because of brokers who practiced that way (among other things).

It isn't fair but such is life.

Keeley, I'm not sure if you made the above post or someone else, but I'm responding as if it were you. Whoever made the post wasn't logged in.

There is no question that YSP has been abused and even if this bill passes it will continue to be abused by banks so the consumer will still lose. To me legislating the issue takes away choice and that's my biggest objection. It's a kneejerk reaction and one that will not solve the underlying issue.

As for my being worth 5% - this is the same argument that I often hear about Realtors - are you really worth 6%? You have splits, just like we do. You have assistants and staff to pay, just like we do. Who can rightfully dicate to me what either of us are worth - except the client!

Yes sometimes I am worth 5%, I might work with a client for six months or more to get their credit to a place where they can get into a good loan product. We don't charge for that advise or for the connections that have built to make sure the loans close. Sometimes I'll send the client to BofA or US Bank because their programs fit the need at a lower cost than I can provide. We are not dealing with eggs or clothing. Loans should be not be treated as a rate and term commodity, but unfortunately that is what the industry has turned into. That's why I do mortgage and equity planning for my clients, not just loans!

Reality is that no one gets paid unless the loan closes. There is value in that. Is every transaction a 5% transaction, absolutely not.

The mortgage side of the business is taking the fall for this crisis. Now that's just life. The truth is that every leg of the real estate transaction is partially responsible for what is going on in the market. Agents pushed prices beyond what they should have been pushed, investors offered risky products for higher returns, wall street packaged risky products into "secure mortgage backed bonds', and yes some loan officers put people into bad loans. Clients begged for those same loans.

To say that the mortgage industry has egg on it's face is true, but so does every other segment of the real estate industry!

"As for my being worth 5% - this is the same argument that I often hear about Realtors - are you really worth 6%? You have splits, just like we do. You have assistants and staff to pay, just like we do. Who can rightfully dicate to me what either of us are worth - except the client!"

Good point! Thank you to those who have posted for the conversation. Kate I appreciate your comments - however, in the future I would better receive them if you would refrain from insulting my viewpoint - I have offered you that respect and expect the same in return.

Keely, I hope you are not referring to me when you speak of people insulting your viewpoint. This is one of those issues that I feel passionate about and I have spent hours researching the facts of YSP. Sometimes my passion comes off a bit strong. If I have insulted you I apologize.

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