Mortgage Loans And Yield Spread Premiums (aka Greed)

The YSP has caused part of the housing crisis. I will post further articles outlining this legalized abuse. (Tim)

Yield spread premium (YSP) is extra profit slipped into virtually every loan (calculated as percentage of your loan amount) which is created only by the loan originator locking and closing your loan at a higher than market rate.
For example, your loan amount is $200,000. The loan officer locks and closes you at 6.5% interest rate. The real market rate…the truthful rate…the rate you could have…should have had… was 6.0%. The spread between the rates yields a premium (another way of saying…money).
Hence the name Yield Spread Premium.
The .5% rate spread on average creates 2.0% of your loan amount as the yield spread premium profit. That means the loan officer made an extra $4,000 (2% x $200,000 loan amount) on your loan in addition to any origination, processing, application, or underwriting fees they disclosed on the Good Faith Estimate or closing statement.
Professor Howell Jackson of Harvard Law School said in testimony before Congress,
“…borrowers are simply told that their loans will have a certain interest rate, and they never understand that the interest rate is higher than it needs to be.”