The proposed rules particularly sought to reduce broker incentives to increase consumer rates and thus to limit the potential unfairness, deception and abuse in the use of yield spread premiums
Yield spread premium
disputes have been taken up by the class-action bar as fuel for a barrage of lawsuits brought against lenders in recent years.
Under the Truth in Lending Act, (40) for example, lenders do not have to include yield spread premiums
in the calculation of finance charges, even though the cost of the premiums is passed on to the borrowers.
An example of such junk charges are yield spread premiums
(YSPs), a method for some lenders to compensate mortgage brokers for steering business their way, with the broker retaining a percentage of the loan interest without clear disclosure to borrowers.
IN TESTEMONY PRESENTED BEFORE THE Senate Banking Committee in January, the Mortgage Bankers Association of America (MBA) reiterated its support for the Department of Housing and Urban Development's (HUD's recent clarifications on the legality of yield spread premiums
(YSPs) under the Real Estate Settlement Procedures Act (RESPA).
The 11th Circuit opined that the yield spread premium
paid to Premiere by Inland was not a payment for goods or services and, therefore, was an illegal referral fee.
A yield spread premium
falls within this exception because the mortgage broker "wholly apart from the settlement services it provided the borrowers, created a valuable asset for Inland (the lender), and the payment from Inland to the broker reflected the value of that asset.
In turn, lenders are willing to pay mortgage brokers and mortgage bankers higher so-called yield spread premiums
(read: fees) for bringing them FHA loans.
The bill bans controversial incentives for lenders and mortgage brokers that steer borrowers into larger or higher-cost loans than those for which they qualify, such as yield spread premiums
and other compensation structures tied to the size of a loan.
Critics say yield spread premiums
are partly responsible for spiking foreclosures.
Many commercial lenders do not restrict or disclose the payment of fees to referring mortgage brokers, including yield spread premiums
(although real estate brokers must be sure to comply with their own industry's rules and regulations regarding receipt and disclosure of fees).
Greater disclosure of lenders' fees to mortgage brokers, which are often called yield spread premiums