If yield spread premium is not disclosed prior to closing is that fraud?

Author: Rob K. Blake | Date: March 30, 2008 | Filed In: YSP Answers

Not disclosing yield spread premium is a violation of the Real Estate Settlement and Procedures Act, so it’s a crime for sure. If the crime is considered “fraud” per se, I am not sure.

However, it is unlikely the Good Faith Estimate (GFE) and/or the HUD1 Closing Statement won’t disclose YSP if it’s being paid. Mortgage brokers on the GFE simply disclose a range to circumvent the law without hamstringing their efforts to maximize their YSP income.
You’ll see the YSP disclosure at the very bottom of the document notated as a range….like “YSP = 0-4%”. This range type disclosure is disingenuous at best, but is the standard YSP disclosure at application used today by mortgage salesmen.

At closing on the HUD1, things are different. Since the title company or title attorney is responsible for the accuracy of the numbers on this controlled document, the YSP disclosure is exact. You’ll find it on lines in the 800’s …like 810,811, or 812….and it will say, “YSP paid to Broker = $7689.34 P.O.C.”…or something similar…an exact figure the title company will disburse to the mortgage broker for charging you a higher rate.

To know the originating company’s total compensation on your loan add the YSP line total to the Origination Fee and/or Mortgage Broker Fee line total(s).

Hope that helps!