Service Release Premium Defined

A service release premium is income paid to a bank when they sell a mortgage with a higher than par rate into the secondary market. In the mortgage industry it is known as SRP. It is the same as yield spread premium because it is income derived from increasing your rate but is different in how it is paid which is largely a legal distinction to avoid disclosure of the income to mortgage applicants.

Bernanke’s new mortgage rules are devoid of any real protection from bad mortgage originators since they conveniently skipped regulating yield spread premiums. The new rules apply to all mortgage lenders and therein lies the rub. If the Fed wanted to reign in mortgage broker yield spread premiums they’d also have to address bank service release premiums.