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Yield Spread Premiums
Yield spread premium issues, studies and lawsuits. Mortgage wholesaler YSPs paid to mortgage brokers.

Consumer Group Takes on Broker YSPs

CRL, NAMB at odds over final Fed rule

Dec. 29, 2009

By staff

A consumer group is at odds with mortgage brokers over the use of yield spread premiums.

On Christmas Eve, the National Association of Mortgage Brokers said it issued a letter to the Federal Reserve Board asking for a delay in the implementation of a final rule that would prohibit broker compensation on closed-end mortgages based on the loan's terms or conditions.

The McLean, Va.-based trade group claims the rule doesn't fairly regulate all compensation for all types of mortgage originators.

"The proposed rule will impede competition, fail to reflect the most current and authoritative research and ... not consider the most effective and least burdensome alternatives," the association said. "NAMB is also disappointed in the board's characterization of payments to mortgage broker companies as 'unfair and deceptive trade practices' with the knowledge that lenders, banks and credit unions receive the same such payments but are not categorized in the same manner."

But the Center for Responsible Lending, which says it is a non-profit, non-partisan research and policy organization that protects homeownership by working to eliminate abusive financial practices, says the Fed should strengthen -- not delay -- its proposal. CRL noted that the proposal includes broader amendments to the Truth in Lending Act's Regulation Z.

The Washington, D.C.-based group claims YSPs to mortgage brokers cost subprime borrowers an estimated $20 billion between 2004 and 2006 compared to direct lender originations. The figures were based on the CRL's own research

"These kickbacks are easy to hide from consumers, and they encourage brokers to aggressively market the worst kinds of loans -- even when their customers qualify for better," the center said. "With some strengthening provisions, CRL strongly supports the amendment that would prohibit lenders from tying bonuses to the terms and conditions of the loan."

The recommended strengthened provisions include a prohibition of splitting origination costs between up-front fees and higher interest rates. Other recommendations involve making wholesalers liable for broker misconduct tied to YSPs and expanding the requirements to home-equity lines-of-credit.

CRL, however, did support monetary incentives to loan originators who deliver high quality, sustainable loans to wholesalers.

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