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.

Service Release Premium Defined

Yield spread premium (YSP) is paid to the broker at closing but SRP is paid to the bank after the closing when they bundle up loans and sell them into the secondary market. YSP has to be disclosed on the Good Faith Estimate at application and the HUD1 at closing but SRP does not have to be disclosed at all.

For example, the bank closes your loan at 6.5%. However, the par rate for that day was 6.0%. After the closing, the bank sells your loan at 6.0% and makes the spread between 6.5% and 6.0% which is probably around 2% or 2 points. If your loan was $300,000, then the bank made an extra $6,000 off your higher rate.

The same thing would happen if a broker closed you at 6.5% with the real par rate being 6.0%. However, they would get paid the extra $6,000 at closing and it would be disclosed on the HUD1.

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