Yield Spread Premium is a technical term for your Mortgage Broker robbing you blind. You won’t find the term in any of your loan documents; however, you could be overpaying for your new mortgage and not even know it. How can you avoid overpaying for your new mortgage? Here are the basics of Yield Spread Premium and how you can avoid paying too much for your mortgage loan.
Mortgage brokers come in two flavors. There are traditional brokers regulated by RESPA legislation, and Broker-Banks that are not subject to disclosure laws under the Real Estate Settlement and Procedures Act. It is difficult to distinguish a mortgage broker from a broker bank. Broker-Banks are a particularly evil variety of mortgage lender that does not have to disclose any of the fees they overcharge you for you home loan. Mortgage brokers operate the same scams; however, they are required to disclose under RESPA. Here’s how their scams work.
Mortgage brokers and Broker Banks make their profits by up selling you on the interest rate you qualify on the mortgage loan. Suppose a broker talks you into taking out a mortgage for 6.5%. You agree because this seems like a fair rate the way the economy has been going. What you don’t know is that the lender actually qualified you for a 6% loan and the broker sold you on 6.5%. Why would the broker do this? They are after all independent agents correct?
What you don’t know about your mortgage broker, unless you know where to look in your mortgage documents and will never know about your Broker Bank because they are not required to disclose their profit margin, is that they receive a bonus from the lender for overcharging you on the interest rate. You probably had to pay the broker origination points for the loan in the neighborhood of 1-1.5% of the loan amount. Did you know the broker received an additional 1-1.5% of your loan amount for each .25% they overcharged you on the interest rate? This bonus is called Yield Spread Premium (YSP) when it’s paid to broker and Service Release Premium (SRP) when the scam is by a bank.
How can you avoid being taken advantage of by your broker or bank? First of all, never, ever take out a mortgage from a bank. Second, you must determine if the broker you are working with is an actual mortgage broker or a Broker Bank. Chances are they will not tell you if you ask; however, there is an easy way to tell. You can learn more by registering for a free mortgage guidebook.
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Louie Latour specializes in showing homeowners how to avoid common mortgage mistakes and predatory lenders. For a free copy of “Mortgage Refinancing: What You Need to Know, " which teaches strategies to find the best mortgage and save thousands of dollars in the process, visit .
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