Yield-Spread Premium

Yield-Spread Premium

A payment made by a lender to a mortgage broker for delivering an above-par loan.

Apar loan is one on which the lender charges zero points. Lenders charge points on loans carrying interest rates below that on the par loan and pay points or rebates on loans carrying rates above that on the par loan. See Points/Points and Rebates as Borrower Options.

On loans involving mortgage brokers, the rebate on above-par loans is credited to the broker, and is referred to euphemistically as the “yield-spread premium” (YSP). YSPs are a major part of broker income.

Because borrowers pay YSPs indirectly in the interest rate, they resist them less than they would broker fees paid directly out of their pockets. But a comparable form of “rebate abuse” also occurs with lenders. See Mortgage Scams and Tricks/ Scams by Loan Providers/ Pocket the Borrower's Rebate.

In its proposals for RESPA reform that were pending in 2003, HUD would require lenders to credit rebates to borrowers rather than brokers. The borrower would have to authorize payment of the rebate to the broker. See RESPA/Proposals for RESPA Reform/ Disclosing Mortgage Broker Compensation.

References in periodicals archive ?
They could also collect money from the lender in the form of a yield-spread premium.
The most clearly unethical form of payment is the so-called yield-spread premium.
NovaStar Mortgage, a Missouri-based mortgage lender, settled a class action lawsuit brought on behalf of borrowers who said they were overcharged in a yield-spread premium (46) scheme by lenders who put them into loans with higher interest rates than for which they qualified.
The reasons for this are complicated, but might be better understood given the fact that a consumer advocate who was involved in yield-spread premium class-action litigation was a participant.
A yield-spread premium is a commission paid to a loan originator for selling a consumer a loan with a higher interest rate than the consumer qualified for.
However, the resulting yield-spread premium must be credited to those customers.
She said, 'Rich, I don't feel comfortable with this yield-spread premium,'" Bouchner recalled, referring to the money a mortgage broker makes for locking in an interest rate above par on a loan for a borrower.
Brokers are also concerned about a proposed change by the Federal Reserve Board to Regulation Z of the Truth in Lending Act (TILA) that would place restrictions on the payment of a yield-spread premium (YSP) by a lender to a broker.
held that a mortgage broker breached his fiduciary duty when he failed to disclose to the borrower the receipt of a yield-spread premium from the lender.
The danger is because the dealer gets the bulk of the interest rate markup, these increases are similar to the yield-spread premiums that mortgage brokers received during the housing market bubble, according to American Banker, adding that those premiums have since been prohibited.