NAMB opposes elimination of YSP, warns of harm to consumersMortgagePress.comYield spread premium,mortgages
The National Association of Mortgage Brokers has expressed
"grave concerns" over a proposal to eliminate the yield-spread
premium (YSP) paid to Mortgage Brokers. In its current form, the
Mortgage Reform and Anti-Predatory Lending Act of 2007, introduced
to Congress on Oct. 22 by Rep. Bradley Miller and co-sponsored by
16 members of the House—including Financial Services
Committee Chairman Barney Frank—could be interpreted to do
away with this important tool that allows borrowers flexibility to
adjust the amount of cash required at closing.
Testifying before the Financial Services Committee, NAMB
President-Elect Marc Savitt said YSP and other forms of indirect
compensation to loan originators were beneficial to borrowers who
did not want to pay any points at closing or were able to pay only
some of the fees up front. "It helps many consumers who are ready
to own a home but have to overcome the hurdle of significant
closing costs, or customers who choose to realize the savings of
keeping their cash and financing their costs through their loan
rate," he said.
Savitt explained that YSP was no different than other forms of
indirect compensation, such as the service-release premium (SRP)
and gain on sale, which is how this same fee is reported by banks
and other lenders. In all cases, originators are paid by either the
lender or the investor/secondary market in return for services
performed and the value of the loan.
"Indirect compensation is a legitimate and legal way for
borrowers to forgo paying their closing costs up front and instead
finance those costs through the interest rate," Savitt said. But
rules issued by the U.S. Department of Housing and Urban
Development (HUD) in 1992 drew an "artificial line" that required
originators to disclose YSP on the good faith estimate and again on
the HUD-1, but shielded SRP and gain on sale from similar
scrutiny.
"A ban on indirect compensation will eliminate cost-effective
loan options for thousands of consumers, increasing costs
significantly," Savitt said. "A ban only on the broker's
compensation will destroy small-business mortgage originators in
this country, resulting in fewer market participants, less
competition and, ultimately, higher prices for consumers."
Savitt's testimony praised other aspects of the bill,
particularly its even-handed approach to requiring all mortgage
originators, regardless of where they worked, to be licensed,
undergo criminal background checks and meet minimum education
requirements.
Since 2002, NAMB has called for increased educational
requirements and mandatory testing for all originators and has
supported a national registry. Calling it the greatest consumer
protection against bad actors, Savitt said, "A national registry
that includes all originators will aid significantly in the effort
to fight mortgage fraud uniformly across all segments of the
industry and will stop bad actors from remaining in or entering the
industry."
For more information, visit www.namb.org.
