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YSP & Solutions to the Proposed Federal Reserve Rule!
Is There Anything Positive About the YSP Proposed Rule?
Written By: Brent Green, Staff Writer, MortgageCurrentcy.com.
This PROPOSED Rule prohibits payments to mortgage brokers and to creditors’ employees who originate loans that are based on the loans terms and conditions. In English – the Rule bans YSP payments for everyone at the origination level.
YSP Background—In Case You’re Wondering
Yield Spread Premium – it exists. It exists at every level of the mortgage transaction and broadly defined, it exists in every industry where there are Wholesale and Retail channels. It is profit, and it's at the very core of our economy.
For the purposes of this proposed Rule it is “the present dollar value of the difference between the lowest interest rate a wholesale lender would have accepted on a particular transaction and the interest rate a mortgage broker actually obtained for the lender.”
The Fed concedes that while this is used for compensation, it may also be applied to costs, thereby benefitting the consumer.
The primary problem according to the Committee on Consumer and Community Affairs is that YSP creates financial incentives to steer consumers toward riskier loans for which the loan originators receive greater compensation. According to the committee this creates a conflict of interest for the LOs and since the consumer is not aware of the conflict of interest, consumers cannot protect themselves against being treated unfairly.
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