Yield Spread Premium

Did your mortgage broker get a kickback from your
lender as a reward for steering you to a higher-rate loan?

Contact Us to find out what you can do about it.

  1. Inflated Home Mortgage Costs: Yield-Spread Premium Information - Some mortgage lenders offer brokers a referral fee if the broker gets the consumer to accept a higher interest rate over the life of the mortgage. At closing, these kickbacks would be listed as "yield spread premiums," "service release premiums," "yield differentials," "rate participation fees," "service release fees" or "par-plus pricing."

    This practice causes several problems for the consumer. One problem is that the mortgage broker has no incentive to find the best deal for his or her client. Instead, the broker can look for the mortgage lender that offers the best referral fee. Another problem is the impact the higher interest rate has on the mortgage payments over the life of the loan. The consumer will pay thousands of extra dollars in the end simply because of a small increase in the interest rate. Finally, since the fees are not explicitly described in the mortgage documents, the consumer has no way of knowing that the broker was not representing his or her best interests.

  2. Letter to Senators - Consumers who do business with mortgage brokers generally have the understanding that the brokers will provide them the loan at the lowest rate which the broker finds for them. Consumers have generally understood and agreed to a specific broker's fee to be paid directly by them -- either in cash or by borrowing more -- to the mortgage broker to compensate the broker for obtaining the loan. What consumers do not understand, and have not agreed to, is when the mortgage broker receives an additional fee from the lender, called a yield spread premium. This is a fee which is paid by the lender to the broker solely in compensation for the higher rate loan. In other words, the lender would have made the consumer a loan at one rate, but because the loan is provided at a higher rate, the broker is paid a fee, or kickback. These lender paid broker fees are not for services provided to the consumers, nor for services provided to lenders. They are solely an extra fee the broker is able to extract from the deal. The result is the borrower will have a higher interest rate for the life of the loan.

    Yield spread premiums are not necessary to support the business of mortgage brokers. Indeed, many loans from many brokers do not include yield spread premiums. They benefit neither borrowers nor lenders, but only the brokers. When yield spread premiums are paid in addition to the borrower paid broker fee, the result is not only a higher price loan to the borrower, the lender then also has a loan which will be refinanced sooner. Note that the mortgage lenders are not requesting this moratorium, just the brokers. Lenders do not benefit from yield spread premiums either.

    Congress passed RESPA to prohibit unearned fees to keep loans secured by homes from being more expensive than necessary. Yield spread premiums are kickbacks generally paid to brokers without providing any benefit to the consumers who are ultimately paying for them in the higher price of their home loans. The federal courts are in the process of determining whether lender paid broker fees, when combined with borrower paid broker fees, violates RESPA's prohibition against unearned fees. Let the courts do their job.

  3. National Association of Mortgage Brokers position on disclosure of Yield Spread Premiums

    4. The new disclosure should not include actual originator compensation, but note how and when compensation is paid, with actual estimated compensation disclosed on the Good Faith Estimate along with all other origination fees and closing costs.
    It is very useful for a borrower to be informed at the earliest possible time that there are different options available for paying the originator's compensation and how these options affect the interest rate on the loan, the borrower's monthly payment, and the cash required to close. While NAMB believes that most responsible mortgage originators already provide this advice to their customers early in the process in order to help them choose loans that meet their objectives, it would be desirable to require this of all originators so that all consumers get the right information that is comparable across originators.

    Originators should not be required to disclose their compensation. Because so many factors go into pricing an individual mortgage and determining the cost of originating a loan, even in the conforming market, it is virtually impossible for an originator to know the amount it must charge to arrange a loan at the time the application is taken. ****The borrower may choose to float the interest rate, so that compensation based on the interest rate would not be known until the rate is locked.**** The loan program may not be known until after the application is taken, the borrower's credit history and income are examined, and the property is reviewed. Once this information is known, the originator can often work with the borrower to improve his or her credit rating and qualify for a more favorable loan program that offers different compensation to the originator. Therefore it is not appropriate to require an early disclosure of the originator's compensation.

    In addition to being impractical, disclosing the actual compensation of an originator at or before application would not help consumers in shopping. Other settlement costs would still not be known by the borrower until the Good Faith Estimate is delivered. This could mislead a borrower, for example, into choosing an originator whose origination fee appears lower, and paying a large non-refundable application fee to that originator, only to discover three days later that the closing costs for the loan offered by that originator are far higher than those offered by the other originators.

    This is why the regime established in RESPA in 1974 for a Good Faith Estimate disclosure of all settlement costs still makes sense today. It does not make sense to require disclosure earlier than the GFE of only one of many settlement costs, especially when it is so impractical for brokers, lenders and originators to determine up front their exact compensation on the loan.

  4. Consumer advocates: Yield spread premiums cost mortgage borrowers millions each year - Yield spread premiums are a little-known fact of the mortgage broker industry that consumer advocates say cost borrowers millions in extra interest payments. Here’s how to protect yourself.

  5. YIELD SPREAD PREMIUM You may have been overcharged on home mortgage closing fees and may be entitled to a cash refund!

    It appears from recent court decisions that mortgage brokers may have unfairly and unlawfully been closing homeowner's loans at inflated interest rates merely to secretly increase their fees in the form of yield spread premium payments

  6. U.S. 11th Circuit Court of Appeals - CULPEPPER v INLAND MTG. CORP. (1/9/1998, No. 97-6109)

  7. Crestar Ruling

  8. MMBA Legal & Legistlative Updates - On October 15, 2001, HUD issued a new Statement of Policy 2001-1, clarifying the legality of yield spread premiums (YSPs) paid by wholesale mortgage lenders to mortgage brokers.

  9. Mr.Mortgage Consumer FAQ

  10. Yield Spread Premium: Update February 5, 1999 - Although some members are hearing rumors that the long-awaited HUD Statement of Policy on lender payments to mortgage brokers (YSPs) has been published, this is not true. At this time, we are fairly certain that it will be published sometime during the week of Monday, February 8, 1999. We have been working very closely and very intensively with HUD staff on the Statement, as have representatives of several other interest groups, including consumer advocates. When the Statement of Policy is published, it will be available on this web site immediately.

  11. Disclosing the Termination of Private Mortgage Insurance, Yield Spread Premiums, and Net Branching Guidelines - Mortgage Bankers and Brokers Mortgage Banking Bulletin June 14, 1999 To: The Institution Addressed Re: Disclosing the Termination of Private Mortgage Insurance, Yield Spread Premiums, and Net Branching Guidelines Private Mortgage Insurance Private

  12. 9-16-98, Statement of John Courson - Statement of John Courson President & CEO Central Pacific Mortgage Company Citrus Heights, California on behalf of Mortgage Bankers Association of America before the Subcommittees on Financial Institutions & Consumer Credit and Housing and Community

  13. John and Patricia Culpepper Shock the Home Lending Industry With Landmark Case - The parties waited over 12 months for this hearing, which was delayed because it was difficult for the appeals court to assemble a panel of judges who did not own stock in some of the lending banks - namely BankAmerica and First Union Corp.