Yield Spread Premium YSP, good for homeowners and buyers
I am glad you have been paying attention to the news about the shake-up in the mortgage industry. I am certainly happy to answer your questions concerning yield spread premiums and I strongly refute Rob K. Blake’s postings of the “mortgage industry’s dirtiest secret”.  He hasn’t “discovered” anything and in fact if you browse his site long enough, you will see he is ultimately selling you books and software!  I am a Loan Officer and I have nothing I’m trying to sell you other than a loan because that’s what I do for a living.  Contrary to what you read and see right now from certain politicians and talking heads, yield spread premium is not a kickback, not dishonest and not anything evil. 

YSP is sometimes the profit for a company when placing a loan. I don’t know anyone that works for free and I don’t know anyone that would expect someone to do that. Mortgage professionals are compensated one of three ways.  Either from you, the bank, or a combination thereof.When I am placing a loan, I give my clients plenty of options, with and without points, no closing cost loans, etc.  Each situation is unique and so is each client. I listen to them and then make recommendations based upon what they tell me.
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Here are three reasons that YSP is very beneficial to the client.
1. A no closing cost loan. If there was no yield spread premium paid, how would anyone ever get a no closing cost loan?  The 3^rd party fees such as an appraiser are paid from the yield spread premium.  Further more, since we know that the yield spread premium is the profit on the loan, what would happen if it was banned?Well, then EVERY loan originated after that would have points and fees. You can sugarcoat it and call it 20 different things but doesn’t it make sense that the person who spends hours, weeks and sometimes months will be paid for his or her services. Doesn’t it also make sense that if the bank can’t pay them, you will?

Without ysp would mean the end of no/low closing cost loans because some people don’t really understand what yield spread premiums are and how they can be used to HELP home owners/buyers.

2. This foolish plan would actually make the housing market worse with an increase in foreclosures.  How you ask?  Very simple, I recently had a client that refinanced out of an ARM at 9.9% I placed her in a 30 year fixed at 6.5%.  She paid off some credit card debt and saved $788 per month.  Without yield spread premium this loan would never have taken place. Why you ask?  Because she had no room in her loan to pay any points.  She was up against her limits on LTV and DTI.  She barely qualified for the loan in the first place.  It took me 7 weeks to talk the bank into doing the loan and getting her to the closing table.  I spent nights, weekends and part of my Thanksgiving holiday while out of town on the phone with her, the bank and my processor making sure everything was as it should be.  Again, let me be clear, she would not have had the loan without YSP.  Even if points had been available, all that does is make a client spend thousands of dollars in a higher loan amount.  Where do you think the points go?  They get added right into your loan amount, so you are paying them off for years.  Fewer people would be able to purchase and refinance properties if yield spread premium was suddenly gone.
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3. First time homebuyers with 95%-100% loans. There are still plenty of good hard working people who deserve a shot at home ownership but they can’t afford a down payment.  Now common sense will tell you that if they don’t have a down payment what are the odds that they have 5-10k sitting around to pay points? It’s so simple I honestly don’t know how people can’t see it.  Without YSP and the inability of a customer to pay points why would anyone place a loan for them?

Again, I can’t think why someone works for free… do you know anyone?  Do you do it yourself?  So the next time you hear/read someone saying that yield spread premiums are somehow a kickback or dishonest, you will at least be well armed with the truth.  My last thought, all mortgage brokers must disclose YSP on the HUD-1 settlement statement so you can know down to the last penny what we all make on a particular deal. If you were fair and honest with the clients, you should have nothing to fear or hide.

I welcome your thoughts and comments below.  Contact me anytime…
Brent Mendelson
888-475-0700 x123