Eliminating yield spread premium starts by avoiding banks like the plague. Bank mortgage rates will always include their version of YSP (called SRP) since they have no legal duty to disclose it.

(In the banking world YSP is called service release premiums or SRP. This “different” classification was the legal technicality or loophole the industry used to legally avoid consumer disclosure altogether.)

Banks spent a ton of money on lobbyists making sure they’ll never have to show you the windfall profits they make by raising your rate…regardless of what it’s called.

Do you think they spent that money and those years lobbying for nothing?

Nope! They indend to use it. And use it they do. Big bank mortgage rates are consistently a half to three quarters of a percentage higher than the par mortgage rates. But they know you don’t have access even with the Internet to par mortgage rates, so you’ll never know just how over priced they really are.

They also know that mortgage brokers are just as greedy as they are, so the the rates you’ll most likely see when mortgage shopping are going to be similar to the artificially raised bank mortgage rates anyway.

So the question really involves “how do you deal with a mortgage broker to avoid YSP”?

The big problem with mortgage brokers is the commission based loan officer. The broker side of the industry with its commission structure, virtually forces the loan officer into the position of obfuscating YSP and the income it creates. It’s quite simple…without YSP income, loan officers would be doing loans for free. Not a great career move to say the least.

Another reason to circumvent loan officers is they don’t explain YSP. They “explain it away”. Most of the time it doesn’t get addressed it at all. Bank loan officers don’t know about it and if they did, they don’t mention it because as we already learned there is no way for the customer to discover it. Think about it from the bank’s side….you don’t show your employees just how much income your high bank mortgage rates generate. If you did, they will all demand a raise!

On the broker side of the industry, all loan officers know about YSP and profit from it. Broker loan officers are paid a split of the loan’s total revenue from fees and YSP. This commission structure insures the loan officer prices the loan with a rate that generates the most YSP income without jeopardizing the deal.

The main difference between bank and broker loan officers is bank loan officers are paid a salary and a small bonus per loan. So the income from the overage of the raised bank mortgage rates goes to the bank, not the employee.

In conclusion, bank mortgage rates are too high and there is no little negotiation. Loan officers can be just has high depending on how much YSP they want to make.

Hopefully new legislation coming down the pike soon will eliminate this problem.

Good Luck!

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