Second, we are a capitalist country. Lenders/brokers are allowed to make a living. You want to lower your mortgage payment? Put down a larger down payment to reduce the principal amount; pay closing cost (discount) points upfront in order to reduce the YSP and interest rate; Pay more than your minimum mortgage payment to pay it off sooner; OR save up your money, get ripped off on non-tax-deductable rent for decades and pay cash for your home.

Third: While you are griping about the 2-3 points that a broker lives on, for some fairly difficult work involved in placing all but the “best borrowers”; why not consider the 6-7% that real estate broker charge to sell a home, for much easier work? If you say that YSP raises the mortgage amount and the real estate commission does not…because it is paid by the home seller as an expense…GET REAL! The majority of sellers do not accept the realty commission as an expense to be paid out-of-pocket from the proceeds. They add it to their sales price. In effect, the buyer is paying the commission and it increases their purchase price. With little money down, the mortgage is increased by much more than it is effected by a Yield Spread Premium or even discount points that are financed.

I just saw your post. Sorry for not reading it earlier. How would you like us to be paid? It’s one of three ways, from you, the bank or a comination. Why is this so hard to understand??? It’s no secret, it’s disclosed many many times as it should be. Sorry you fel ripped off but at least now you know. I guess none of it’s your fault for not understand the process either right?

And Brent – correct me if I am wrong, buy YSP does NOT equal broker profit on the loan, it equals revenue that the broker recevied. That revenue minus direct and indirect costs equals profit. And yes, I am a capitalist and believe that everyone should make a fair and reasonable profit.

Now, what is fair and reasonable? Well, in government contracting where I work, the market place and competition determines fair and reasonable within the confines of the F.A.R. In this case, as Brent himself recommends, shop the rate — but not only the rate, but how that rate is derived, which is points, fees, and YSP. If all brokers were transparent in these areas and upfront with the consumer then competitive pricing would rule. There is a lot more transparency now (minus the banks) into rates and structure, but as a consumer, I am going to continue to push for the most visibility and the best rates …

Tell me what the Walrus comment means, I would like to know.
Here’s my opinion again. That’s why I say shop the rate. I don’t think people should worry about what I am getting paid, I really don’t. Can you please tell me another industry where this would occur. YSP is the profit on loans. Now if we are charging broker fees, points and getting YSP then I agree that is a bit much. If you shop the rate then YSP is reduced. Again if they weren’t charging points or a broker fee then the YSP was the only profit method. Lastly, when I price out a loan, I offer a no YSP option with points and one with YSP. I explain the difference and the benefits and help the client decide which is better. Let me know if you have any questions.

Had he said up-front “In addition to our fees (as listed on the GFE), I typically make X% on a loan and on your loan that will be approximately Y$. Part can be paid by you in the form of points and the remainder will be paid by the lender as YSP and you will see that exact amount at closing” then I would not be on this website making this comment because I would have been fully informed (or to quote Pat Cadigan, Incurablely Informed).

As it was, I will be next time ….

p.s. The name calling above was completely unwarranted

p.p.s I laughed when I got to the part of the “dirty secret” guy’s website and he was hawking books for $30 a shot

p.p.p.s Paul is the Walrus

The 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 that would indicate to me that your “friend” qualified for a lower interest rate, but you sold her on a higher one. And in my experience, the broker pocketed the YSP (which was disclosed only in the HUD-1 at the day of closing) and her fees without contributing a cent to our closing costs, so…how does that help us? I doubt this is any irregular practice as most borrowers in our situation don’t even know what that term means without looking it up and they didn’t find out about it during the day of closing when they can no longer do anything about it. Why not tell people you are getting a “rebate” for charging them a higher interest rate when they are shopping around if it is so beneficial to them? Maybe because that would scare away potential “marks”.

Oh, and it is the borrower’s business to know your comission when they are paying for it indirectly. The money might come from the bank, but it originated from the borrowers. The YSP is a result of a borrower committing themselves to a HIGHER INTEREST RATE. I, for one, would have opted for a lower interest rate, had I known my broker raised it for his kickback, but I was never informed of this option. The government believes this is our business. Consumer protection agencies believe this is our business. The only people who don’t believe this is our business are the brokers and gee, I wonder why.

As this webpage pretends to do, I’m going to offer advice to potential borrowers, I know I can’t compete with the silver tongued brokers, so I speak directly to the borrowers in hopes that they can make an informed decision: ASK ABOUT YSPs EARLY AND BEFORE COMMITTING TO A LOAN BECAUSE THEY AREN’T GOING TO TELL YOU ABOUT IT.

What can I say, awesome post. We have all been ther haven’t we?
Hopefully we can get these guys to see the light someday. It’s why I wrote this in the first place to counteract snake oil salesmen like Rob Blake and John Shibley.

If Steve made that deal and shopped around that was the best why wouldn’t that be fair? Isn’t that what we do with credit cards and especially car loans?
You really need to read the other posts here. I am going to lay it out for you one more time. As a mortgage broker that YSP is disclosed as a range on the GFE when your package goes out. It is also written on the HUD-1 to the penny at settlment. Don’t shop the YSP, shop the rate!! That by the way is the law so it is followed. Every time. Cameron, I would agree if there is YSP and a 2% broker fee it could be excessive. Most of the time there aren’t such fees. Look at Matt’s comments, he nailed it. Again please reread my orginal post 2nd paragraph to see how loan officer are compensated. There are also reasons that they rate or points could be higher and they are all related to the customers income, credit and loan to value. If someone comes to a lender with a 650 credit score needing a loan and only has 10% equity they will pay a higher rate than someone with a 750 score and a 75% equity position. Or pay points to cover. You don’t like that, well to bad, those are the rules and they are very straightforward. I appreciate you taking the time to write in, just do a little homework first and ask questions instead of throwing bombs.

OK your numbers make some sense. Last time I looked if you borrow money whether from a person or a bank they will charge you interest and make money. Isn’t that the whole reason you loan someone money? If you say no then please come loan me some money for 0% interest. How much over par is determined by your broker and YOU!! As I always say, shop around, tell them you want to pay points instead and par the rate out. Most brokers don’t care how they are paid. Being a smart informed consumer and using someone you actually know can go along way to ensuring the best deal available.
I have to say though you don’t get YSP 100% from reading your comments. Only speaking for myself but I always explain options to my clients. Please reread the second paragraph of my original post as to how loan officers are compensated. Unless you were here listening to me, I don’t know how you would know what I tell my clients. Suffice it to say you are wrong about what I tell them. I only speak for myself of course, there are plenty of shady people in the business and it sounds like you ran into them and didn’t get the best deal possible. Sorry to hear that but if you had taken my advice that probably wouldn’t have happened. Again reading you comments, you accuse me of not asking the proper questions regarding length of time that someone would plan to be in the home. It’s something I always ask just to be clear so I can tailor the loan to just what they need. Anyway, yes to answer your question, you sure could come in and say I want a no YSP loan and just pay points up front. WHO CARES!! I agree that many people should do that but they won’t because they read the “points are bad articles”
And yes John, people can afford closing costs which are 3-4% of a home price so not 1.3k per 200k home but 6-8k but not any additional points. That or they don’t want to do so. The fact is people move much more than you think and or refinance, that’s why you ask the questions but I have seen people come back to refinance over and over again. Thanks for writing in again but please read and think about what I have written.

Bottom line: The higher the rate the lower the cost as the cost is covered by YSP. You want a lower rate, perfect, there is no YSP and you can pay the points. Take your pick. If you feel like you cant trust your broker then you shouldnt be dealing with them.

Yes it may end up costing 24k over 30 years given the situation you mentioned above, but what if the borrower only is planning on staying in the home for 1 or 2 years? Does it still make sense to pay points. If you answer is yes then you need your head examined and double check your educational certificate and make sure it wasn’t stamped by sesame street.

I will tell you, both of you are probably the worst clients to work with. When I have a jerk as a client I will charge them extra for just dealing with them. Think thats unfair? tough…. don’t be a jerk when you are looking for a loan.

Oh and Steve, since you are so smart, how about you sign a contract with me. The terms are this. You borrow 3k from me and when we hit 10 years you give me 9k. What! You say that is not fair.

Listen, if Brokers would just disclose the YSP up front then you wouldnt even have this discussion but since they dont, and people have learned post escrow how they got screwed out of getting a better interest rate, then I say Brokers deserve to be lumped with the rest of the folks that omit material facts (ie. fraud).

This garbage about “brokers need to get paid too” is a crock! What do you call the 1%-2% broker fee they are charging? Hmmm…looks like a paycheck to me. Oh you mean you want 6k-9k for pushing paperwork for one home. I am sorry, my 3rd grader can do that (thanks Steve for the reference).

So in closing, honesty is the best policy!