Posted on: 04th Apr, 2007 12:40 pm
need some information about yield spread premiums
"need some information about yield spread premiums"
It is a payment to broker by a lender for originating & processing the loan by charging a marginally higher rate from borrower.
It is a payment to broker by a lender for originating & processing the loan by charging a marginally higher rate from borrower.
YSP is the increase of rate done by broker who originates your loan. They get paid for by the lender for placing you in a higher cost loan. Broker gets paid 1% of your loan amount for every quarter point you pay extra. As, if you are offered a $200,000 mortgage at 7.25% interest where the actual rate should be 7%, broker can earn YSP of $2,000 (1% of $200,000). This amount/fee is paid directly to the broker as a rebate by the lender.
You are not directly paying any fee directly but by accepting a higher interest rate you would be indirectly paying the fee. This fee is required to be disclosed by broker as fee Paid Outside Closing (POC) on HUD I Settlement Statement.
Miller
You are not directly paying any fee directly but by accepting a higher interest rate you would be indirectly paying the fee. This fee is required to be disclosed by broker as fee Paid Outside Closing (POC) on HUD I Settlement Statement.
Miller
To avoid paying such ysp you should know the actual current rates. For that you can check the weekly yield posted on web site maintained by Fannie Mae & find out the current rates. That way you will be able to know if rate charged from you is higher than normal.
Having this information is like being aware of the bluebook value of a car you intend to purchase. It becomes difficult for any dealer to ask a higher price when you are aware of wholesale value of the car.
Having this information is like being aware of the bluebook value of a car you intend to purchase. It becomes difficult for any dealer to ask a higher price when you are aware of wholesale value of the car.
Checking the weekly yield as reported by Fannie Mae is one source of information but by no means a "blue book" equivalent.
First of all, Fannie Mae is only one source of money ultimately for mortgage loans that are packaged and sold as a mortgage backed security. What if the loan you are interested in isn't something that Fannie Mae would buy? Then you would be looking at blue book values for 4-door hondas and assuming it would apply if buying a 4-door Volvo.
Secondly, Fannie Mae weekly yields are reported at least a week old and will not reflect the interest rate market of the specific day you are talking to your loan officer. In this manner there is NO comparison between auto buying and mortgage shopping.
Lastly, the Fannie Mae weekly yield does not include servicing fees, typically an additional .25% add on to rate if the mortgage company doesn't keep the loan for customer service purposes...collecting payments. It also doesn't include any loan level adjustments. What if you are shopping for an 80/20? That first lien is going to have a price adjustment whereas if you were putting money down it would not. What if your property is a 2 unit? The list goes on.
The simple truth is that you can't use this information as a "blue book" of mortgage rates. Mortgages are not a manufactured product which is made by a factory and sold through dealerships. It just doesn't compare.
good luck.
First of all, Fannie Mae is only one source of money ultimately for mortgage loans that are packaged and sold as a mortgage backed security. What if the loan you are interested in isn't something that Fannie Mae would buy? Then you would be looking at blue book values for 4-door hondas and assuming it would apply if buying a 4-door Volvo.
Secondly, Fannie Mae weekly yields are reported at least a week old and will not reflect the interest rate market of the specific day you are talking to your loan officer. In this manner there is NO comparison between auto buying and mortgage shopping.
Lastly, the Fannie Mae weekly yield does not include servicing fees, typically an additional .25% add on to rate if the mortgage company doesn't keep the loan for customer service purposes...collecting payments. It also doesn't include any loan level adjustments. What if you are shopping for an 80/20? That first lien is going to have a price adjustment whereas if you were putting money down it would not. What if your property is a 2 unit? The list goes on.
The simple truth is that you can't use this information as a "blue book" of mortgage rates. Mortgages are not a manufactured product which is made by a factory and sold through dealerships. It just doesn't compare.
good luck.
We were told that YSP was not allowed in Texas, is this true. We are an Arizona lender?
YSP is a premium paid to the broker from the lender. It is not a hidden fee or anything like that.
The formula for calculating YSP varies from lender to lender.
"This fee is required to be disclosed by broker as fee Paid Outside Closing (POC) on HUD I Settlement Statement."
Not necessarily, if a broker is a correspodent with a bank then they do not disclose the Yield spread.
"That way you will be able to know if rate charged from you is higher than normal.
"
This is in no way connected to a higher than normal rate. This is also the benefit of using a broker. And lets you choose how you want to pay. Upfront, in YSP or Both.
Let me make it easy for everyone to understand. This is also exactly what I say to my clients...
When you get a mortgage you will pay fees to get it. In this situation you have a choice based on the best situation for you. I am going to get paid regardless as I am providing a service to you. You can either pay upfront or pay in Yield spread or Both.
Here is why some of the previous statements are wrong. As a broker we work with wholesalers. Lets take Countrywide because everybody knows who they are. The do business "Retail" which is direct to consumers, AND "wholesale" which is business with a broker or originator. Now "retail" has a rate on their website at 7%. A broker gets the exact same program for his clients at 6.5%. Now the customer has a choice... pay a fee and get the 6.5% rate or don't pay as much and get the 7%. Same fee as if they went straight to the bank. Now if it will benefit them they could pay an upfront fee and save the .5% every month. Depending on the situation this could save thousands over the life of a loan. Or they could get the same rate as in the first place and not save OR lose anything.
Now don't get me wrong you still want to do your competitive research as there is nothing stopping the broker from charging both. There is also nothing stopping the direct lender from charging both and as I stated before a chartered bank does not have to tell you what they make in YSP.
I hope this helps to clear up some misconceptions about Yield Spread Premiums or YSP.
The formula for calculating YSP varies from lender to lender.
"This fee is required to be disclosed by broker as fee Paid Outside Closing (POC) on HUD I Settlement Statement."
Not necessarily, if a broker is a correspodent with a bank then they do not disclose the Yield spread.
"That way you will be able to know if rate charged from you is higher than normal.
"
This is in no way connected to a higher than normal rate. This is also the benefit of using a broker. And lets you choose how you want to pay. Upfront, in YSP or Both.
Let me make it easy for everyone to understand. This is also exactly what I say to my clients...
When you get a mortgage you will pay fees to get it. In this situation you have a choice based on the best situation for you. I am going to get paid regardless as I am providing a service to you. You can either pay upfront or pay in Yield spread or Both.
Here is why some of the previous statements are wrong. As a broker we work with wholesalers. Lets take Countrywide because everybody knows who they are. The do business "Retail" which is direct to consumers, AND "wholesale" which is business with a broker or originator. Now "retail" has a rate on their website at 7%. A broker gets the exact same program for his clients at 6.5%. Now the customer has a choice... pay a fee and get the 6.5% rate or don't pay as much and get the 7%. Same fee as if they went straight to the bank. Now if it will benefit them they could pay an upfront fee and save the .5% every month. Depending on the situation this could save thousands over the life of a loan. Or they could get the same rate as in the first place and not save OR lose anything.
Now don't get me wrong you still want to do your competitive research as there is nothing stopping the broker from charging both. There is also nothing stopping the direct lender from charging both and as I stated before a chartered bank does not have to tell you what they make in YSP.
I hope this helps to clear up some misconceptions about Yield Spread Premiums or YSP.
Welcome Amy,
I'm not aware of YSP in Texas but I found some of the community members discussing on a similar query at http://www.mortgagefit.com/arizona/yieldspread-premium.html . Just have a look.
I'm not aware of YSP in Texas but I found some of the community members discussing on a similar query at http://www.mortgagefit.com/arizona/yieldspread-premium.html . Just have a look.
People often confuse a good deal with how much its costing them. If I work for free for you but give you a 8% interest rate and another guy makes $10,000 on the same deal and gives you a 7.5% loan with the same parameters who is doing you a better service?
Everyone wants to make money at their job and everyone should make money at their job.
Realise that in most cases your loan originator is getting paid commissions only. And there is no guarantee to him that he is going to get paid untill the deal is closed. A typical loan from start to finish can take as long as a month. During that time we have to conatct lenders and find best programs that we can for our clients. And there is always a good chance that something will go wrong, client will change their mind, or will go to a different lender that has promised something better. So you can spend entire month working on a deal just to have it fall through at the last moment. Obviously a good loan officer will attempt to make sure that client is well informed and getting a competitive program to avoid that but I still expect to get paid at the end of the transaction.
Alot of people dont realise that there hundreds of lenders out there and each has 100+ programs to offer and while some programs are simmilar they have different rates and qualificatrions.
What people need to look is at the bottom line. Are they getting the best loan possible based on their qualifications. Do they trust the person they are working with. Who cares what loan officer makes if he can get you the best deal?
People think that they are paying the loan officer when in reality this is a cost of doing business.
Everyone has paid $5 for a cup of coffee at a coffee shop. Do you really think it costs $5 to make that cup of coffee? Of course not but its convinient and suits thouse that buy it.
So here is the bottom line - Look at the bottom line!
Everyone wants to make money at their job and everyone should make money at their job.
Realise that in most cases your loan originator is getting paid commissions only. And there is no guarantee to him that he is going to get paid untill the deal is closed. A typical loan from start to finish can take as long as a month. During that time we have to conatct lenders and find best programs that we can for our clients. And there is always a good chance that something will go wrong, client will change their mind, or will go to a different lender that has promised something better. So you can spend entire month working on a deal just to have it fall through at the last moment. Obviously a good loan officer will attempt to make sure that client is well informed and getting a competitive program to avoid that but I still expect to get paid at the end of the transaction.
Alot of people dont realise that there hundreds of lenders out there and each has 100+ programs to offer and while some programs are simmilar they have different rates and qualificatrions.
What people need to look is at the bottom line. Are they getting the best loan possible based on their qualifications. Do they trust the person they are working with. Who cares what loan officer makes if he can get you the best deal?
People think that they are paying the loan officer when in reality this is a cost of doing business.
Everyone has paid $5 for a cup of coffee at a coffee shop. Do you really think it costs $5 to make that cup of coffee? Of course not but its convinient and suits thouse that buy it.
So here is the bottom line - Look at the bottom line!
