NAMB Opposes Elimination of Yield Spread Premium

10/24/2007

7900 Westpark Drive, Suite T-309, McLean, VA 22102   (703) 342-5900   http://www.namb.org/

Press Release              Contact: Jodi Greenblatt
                    (703) 342-5852

NAMB Opposes Elimination of Yield Spread Premium
Warns that Unintended Consequences Could Harm Consumers


McLean, Va. October 24, 2007 The National Association of Mortgage Brokers (NAMB) today 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 October 22 by Rep. Bradley Miller (D-N.C.) and co-sponsored by 16 members of the House including Financial Services Committee Chairman Barney Frank (D-Mass.), could be interpreted to do away with this important tool, which 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 are beneficial to borrowers who do not want to pay any points at closing, or are 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 for customers that choose to realize the savings of keeping their cash and financing their costs through their loan rate," he said.

 

Savitt explained that YSP is no different than other forms of indirect compensation such as 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," he said. But rules issued by 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 work, 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." 

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The National Association of Mortgage Brokers is the voice of the mortgage broker industry with more than 25,000 members in all 50 states and the District of Columbia. NAMB provides education, certification and government affairs representation for the mortgage broker industry, which originates over 50% of all residential loans in the United States.

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NAMB - NAMB

NAMB Opposes Elimination of Yield Spread Premium

10/24/2007

7900 Westpark Drive, Suite T-309, McLean, VA 22102   (703) 342-5900   http://www.namb.org/

Press Release              Contact: Jodi Greenblatt
                    (703) 342-5852

NAMB Opposes Elimination of Yield Spread Premium
Warns that Unintended Consequences Could Harm Consumers


McLean, Va. October 24, 2007 The National Association of Mortgage Brokers (NAMB) today 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 October 22 by Rep. Bradley Miller (D-N.C.) and co-sponsored by 16 members of the House including Financial Services Committee Chairman Barney Frank (D-Mass.), could be interpreted to do away with this important tool, which 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 are beneficial to borrowers who do not want to pay any points at closing, or are 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 for customers that choose to realize the savings of keeping their cash and financing their costs through their loan rate," he said.

 

Savitt explained that YSP is no different than other forms of indirect compensation such as 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," he said. But rules issued by 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 work, 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." 

###

The National Association of Mortgage Brokers is the voice of the mortgage broker industry with more than 25,000 members in all 50 states and the District of Columbia. NAMB provides education, certification and government affairs representation for the mortgage broker industry, which originates over 50% of all residential loans in the United States.

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Forgot Password?

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