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.
* a credit (yield-spread premium
[YSP]) or charge (discount points) for the interest rate chosen;
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.