Housing News

YSP: Boon or Bane for Homebuyers?

There’s a decade-long debate on your broker’s earnings.

Last month, Peter Coy invited Finance Writer Mara Der Hovanesian to discuss the dispute between the Department of Housing and Urban Development and brokers in the country. The issue? HUD wants third-party brokers to disclose their earnings from helping them secure a loan. For starters, the yield spread premium is paid by the mortgage broker and not the borrower. It is expressed in percentage points on a broker’s rate sheet. Borrowers cannot see this figure because they do not pay the fee. The HUD on the other hand has proposed that borrowers do have the right to know how much is paid to the broker since some believe that the borrowers are actually charged of the premium instead.

True enough most of the commissions these days come from YSP. However, the National Association of Mortgage Brokers states in its press release, “The Final Rule discriminates against mortgage brokers with the required broker-only disclosure of yield spread premium (YSP), placing them at a permanent disadvantage in the marketplace. HUD has also disregarded numerous federal and private sector studies providing evidence that different origination channels disclosing differently confuses consumers, and will often times cause them to choose a more expensive mortgage product.” That being said, in some states like California, brokers are required to disclose everything. However, allegations of obscure information on the difference between the interest rate and the YSP continue to threaten the brokers’ stand.

If there is nothing to hide in their loan sheets, then what is there to contest against HUD? How can the small brokerage firms feel threatened by the new rule citing unfair competition when in fact, their size should be enough to influence clients that they can offer a lower, more competitive fee? If HUD is accused of coming up with flawed conclusions in their study, wouldn’t it suffice to consult other industry researches? In a 152-page study entitled Kickbacks or Compensation: The Case of Yield Spread Premiums by Howell Jackson and Jeremy Berry of Harvard Law School, they found out that total borrower cost on loans with YSP are much higher.

It is only right that the HUD perform its obligations to protect homeowners against fraud in the market. As consumers, isn’t it fair to know everything from what we are buying?

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