Why Is Mortgage Yield Spread Premium Such a Well-Kept Secret?
Mortgage yield spread premium is responsible for up to two thirds of the revenue earned on every mortgage. Yet most Americans have no knowledge of mortgage yield spread premium or how to avoid it.
No one in the mortgage and banking industries wants you to find out about mortgage yield spread premium because it would betray the fact they earned that money by raising your rate. Raising your rate for no other reason than to increase their income is not good for business.
In order for a con to work, the mark has to be oblivious to the deception, right?
If he discovers the truth, the jig is up! No more money…and maybe even a jail sentence.
Is that really so different from hiding mortgage yield spread from the American public?
If a loan officer gave you a choice of a loan at 6.5% rate or a loan at 6.0% rate, they know which one you would choose.
They also know they just lost most of the profit on your loan.
So they don’t give you the choice. The simply say, “Your rate Mr. Smith is 6.5%.”
Consumers need to realize they do have a choice of 6.0% instead of 6.5%. Mortgage yield spread premium is real and if you are educated on how to avoid it, you can have the 6.0% rate. You must learn to eliminate YSP on all loans you do now and in the future. We do loans every day here in Colorado without overcharging our clients using YSP. If you are outside Colorado, you need The Mortgage Advantage to find someone in your own state who operates similarly.
Type the phrase “mortgage yield spread premium” into Google or any search engine. You can find anything from articles on Senate Banking testimony to lawsuits on this subject. By the way, every time a borrower has sued over mortgage yield spread premium the borrower always wins. Then the banks appeal, and secretly settle out of court. That should tell you something.
If people knew this existed, they would not stand for it and that is why it is such a secret.
Loan officers are very crafty when explaining away mortgage yield spread premium should you ask them about it. Most consumers have never heard of yield spread premium and the ones that have, don’t even know the correct details. So usually the originator never has to field any questions about it in the first place. So when they do get a question about it, they either:
1. Play dumb
2. Get angry
3. Attempt to down play or explain away
4. Are so caught off guard, they stammer, himm and haww…that’s the funny one!
Want to have some fun?
Call a mortgage company (not a bank though…they keep their employees so in the dark, they won’t know what you’re talking about.), get a loan officer on the phone, and ask them how much they typically make from Yield Spread Premium…1 point, 1.5 points, or maybe even 2 points!
Then report back in the comments below…and tell me which reaction you get!
Either way, you won’t get a good reaction. This is another reason to get our The Mortgage Advantage so you’ll know who to talk with, what to say, and how to get a mortgage company to give a no YSP mortgage each and everytime you need one.
Good Luck!
Author: Rob K. Blake
Published January 4, 2008
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Chris,
At least you are admitting to “earning” or at least “getting” a 2% profit on every loan…the same finding that Prof. Jackson’s study on yield spread premium determined to be the “target” of all mortgage lenders…bank or broker.
The tone of the article is in line with reality…”disclosure” is not effective….you know it and I know it.
When 65% of loan applicants can’t tell what their rate is from the current loan disclosures….how are they supposed to figure out a much more obfuscated entry like yield spread premium ??….
Putting your yield spread premium earnings on a the GFE and on HUD1 is a legal requirement…explaining it to the client until he understands it …is not.
You must admit even though you may “fully explain” your yield spread premium …most everyone else does not…including the banks who make overage from upping the rate too…but since they don’t have a legal requirement to put their “earned” overage on the GFE or the HUD1…get away with “undisclosed earnings” on every loan!
If we all really care about “transparency” then both banks and brokers have to be on the same playing field…and if we really care about the client, we have to outlaw yield spread premium …since disclosure is simply NOT enough to stop those who currently (and will continue to) abuse it.
RKB
October 25th, 2007 at 3:12 pmI am the owner of a mortgage company in Florida. I have ALWAYS explained to my clients that I can get paid 2 ways. I can get my fee (typically 2%) from them or from the lender loaning them the money. The difference will be in the rate and closing costs. If they want the best rate, they need to pay me a 2% origination fee and they will recieve th “par” rate on the loan, which means the bank is not paying me. Or if they want the least closing costs, then the bank will pay me 2% for a high interest rate on the loan. I work very hard packaging, processing and closing loans and I believe that a 2% fee is fair since Realtors charge 5%-7% depending on what part of the country you are in. yield spread premium is simply “marking up” a product you get wholesale when you sell it retail. Does anyone complain about Walmart buying a radio for $5 and selling it for $25. I find the tone of this article misleading. EVERY PENNY of yield spread premium is disclosed by me to my client and is also on the HUD-1 settlement statement. Are there originators who hide this from their clients? I am sure, but crooks in any profession should not cast negative shadow on the whole field.
October 25th, 2007 at 2:55 pmLeave a Comment