A lot of consumers don't have any idea of how or what Yield Spread Premium (YSP) is I have discussed it in the past at my 'Soapbox' views are rather unpopular amongst my Mortgage Broker colleagues. In a nutshell YSP is a tool lenders offer brokers to make loans more marketable in the secondary market. That's a very nice way of saying, your broker is able to jack up your interest rate and the lender pays the broker a premium depending on how much the interest rate is jacked up. Therefore a consumer never truly gets the interest rate they deserve unless points are paid to 'Buy Down' an interest rate that didn't need buying down. To be fair, we live in a capitalist society and making money is an opportunity that every US citizen has the right to do. With the proper disclosures I believer there is nothing wrong with minimal YSP as long as it is properly disclosed.
The Federal Reserve Board Thursday recommended new disclosure rules for homeowners and compensation guidelines for mortgage brokers to correct some abuses of the recent runaway housing market.
Prospective borrowers would receive a one-page notice of key questions about their loan and see a graph comparing their interest rate to that of a low-risk borrower, the Fed said.
Mortgage brokers would not receive greater compensation if they put a borrower into a high-cost loan, under the rules.
"Consumers need the proper tools to determine whether a particular mortgage loan is appropriate for their circumstances," Fed Chairman Ben Bernanke said during an open meeting of the board.
There are ultra conservative interest groups who have in the past tried to outlaw YSP, I believe these efforts will continue until a process is given to the consumers which protects them from predatory lending, obviously a great proposal. But these activist groups cannot with a straight face actually blame 'The Runaway Housing Market' on YSP.
-Christopher Rockey
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