Yield-Spread

There has been a lot of noise in the news about the sub-prime fallout. It is really getting messy and as we mentioned in previous blogs, we as brokers have shifted to using financially strong lenders. Aside from this, mortgage brokers are also taking a hit in the press. Unfortunately there are always bad apples out there that make it in the news. With this being the case, some of the bad press is probably justified. However, after reading some articles on Yield-Spread Premium (YSP) I am a little annoyed. These articles make it sound like all brokers abuse the fees that they charge and do not disclose what they make. While this may be true for some, it is definitely not the case for all! Professional Mortgage Group, Inc. takes great pride in doing things the right way. This is why the company was formed! We make sure we meet our clients face to face and go over everything! They are well aware what is taking place!

Now YSP is the amount of money a broker is paid from the Lender, not the borrower. Brokers are able to be paid by up-front disclosed fees, YSP, or both. This YSP is disclosed, but there have been many cases that by the end of the loan there is very little or ZERO YSP to pay us. . This is just the nature of the industry and if this happens, we don't make any money. This fact alone shows that we do not abuse YSP. If we did and market conditions change, we would never run the risk of making zero on a loan because there would be a larger cushion there! What is frustrating for clients is when these market conditions affect the rate mid-loan and in order to make money the broker either raises the rate or charges an up-front fee at the last minute!

This is something we WILL NOT do to our clients. If we promise a particular loan scenario, we deliver. If that means we do the loan for free, then we do it for free. A happy customer is worth more than a few dollars in our pocket. After all, that happy customer will probably come back or refer us business in the future!

As we mentioned, we do disclose that there is YSP on the Good Faith Estimate. However, I feel brokers are unfairly bashed for getting paid YSP! When you walk in to a furniture store or any store for that matter, is the markup listed on the price tag? Are they required to disclose it?

Of course not! If it was would it matter? Not at all! This is because they must make money somehow and they aren't going to sell something for free! The authors of the articles bashing brokers would probably think a little differently about this topic if they weren't on salary. Just think if they were paid a set fee per article they write. Say they make $250 when they sell it to Yahoo but $300 to MSN. I'm sure when it comes down to it they are going to only deal with Yahoo or be fair and sell it to MSN for $250 also. Of course not! They must make a living. When a broker promises a rate of 6.25%, their job is to give that to the customer. Now if lender A will pay them more for offering that rate to their client than what lender B will, then it is only good business to go with lender A! The extra YSP doesn't affect the client.

Now with all this being said, I absolutely agree that their must be full disclosure and I am opposed to any brokers that are involved in shady practices! I just want people to realize that YSP is a good thing to keep the customer from paying for a bunch of fees out of pocket, while still getting a competitive loan. When they talk about marking up an interest rate to get paid more YSP, you are talking about a very small mark-up like 6.25% instead of 6.125% or 6.0%. This is hardly ripping off a client. Now if someone marks it up to 7 or 8%, that is an entirely different story!

I hope this information is helpful. As always we welcome you questions and comments!

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Professional Mortgage Group, Inc. of Columbia, MO.