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A yield spread premium (YSP) is the money or rebate paid to a mortgage broker for giving a borrower a higher interest rate on a loan in exchange for lower up front costs, generally paid in origination fees, broker fees or discount points.
Yield spread can also be an indicator of profitability for a lender providing a loan to an individual borrower. For consumer loans, particularly home mortgages, an important yield spread is the difference between the interest rate actually paid by the borrower on a particular loan and the (lower) interest rate that the borrower's credit would allow that borrower to pay.
The Federal Reserve has banned mortgage fees you probably weren't even aware of, but that were inflating your home-loan interest rate. On Monday, the Fed announced it was banning yield spread ...
Mortgage brokers, on the other hand, earning the same yield spread premium, disclose the additional fee to the consumer because the yield spread premium becomes an additional fee earned and therefore disclosable under federal and state law.
The Fed spelled out its goals yesterday: "Prohibit lenders from paying mortgage brokers "yield spread premiums" that exceed the amount the consumer Abuses the Fed hopes to correct with the new ...
In attempt to put on a more consumer-friendly face, the Federal Reserve proposes a ban on side payments to mortgage brokers that encourage them to steer customers to higher-cost mortgage loans.
Adjustable rate mortgage or ARM - A mortgage where the interest rate adjusts relative to a specified index + margin. E.g. COFI, LIBOR etc.; Hybrid ARM - An adjustable rate mortgage where the initial 'start' rate is fixed for some portion of time (3,5,7, or 10 years) thereafter the interest rate adjusts (yearly or bi-annually) based on the sum of a specified index + margin.
In my last post, I began to lay the groundwork for the argument as to why the mortgage (and real estate) markets need radical transparency to restore consumer and investor confidence. I described ...