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. Brokers can claim this premium by steering a borrower whose credit history qualifies him or her for say, a 7 percent loan, into a more expensive loan at a higher rate.
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.
Instead, the MRWG was comprised of organizations that met in an attempt to resolve these issues among themselves, complicated by added pressure from yield-spread premium class-action litigation and the beginnings of the anti-predatory-lending laws.
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.
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.
CFPB's Raj Date also singled out yield-spread premiums (YSPs) as an area of mortgage lending practices that too often involved brokers being "paid more to give borrowers a worse deal." He said first the Federal Reserve and then Congress took steps to end such practices.
The rule change is aimed at addressing complaints from consumer advocates about yield-spread premiums -- the fees that loan originators pay to mortgage brokers for bringing in a customer, which are widely viewed as a reward for locking in consumers at higher interest rates.