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First Line Data enhances Counter-Fraud Review reports

Nov 06, 2007

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
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