The Only Way To Locate YSP Before Closing
The HUD 1 settlement statement is the only place to locate the exact amount of yield spread premium you were charged. Of course, by then it is probably too late!
Other non settlement statement mortgage disclosures specifically the Good Faith Estimate (the mortgage application disclosure) are useless for discovering yield spread premium overcharging since most brokers either never disclose or obfuscate the disclosure as you’ll see below.
Settlement Statement Yield Spread Premium For Banks
If you are dealing with a bank or a mortgage company that closes loans in their own name (these companies get the same favorable treatment as banks) you won’t find YSP disclosure ANYWHERE!
Banks don’t by law have to show you their increased revenue from upping your rate. You won’t see it at application or at closing on a bank settlement statement.
When it comes to mortgage brokers, you are going to have difficulty getting them to show you the YSP they put into their loans as well. They make almost two thirds of their income from yield spread premium rate bumping and unless you can demonstrate you know it’s real and will not stand for it, you have little chance of avoiding it.
Let me say that again….everyone else (those not reading this tutorial) have little chance to avoid the YSP rip-off.
Suffice it to say, you only have a chance to eliminate the increased rate when dealing with a broker since by law they are the only ones who have to show it to you. The law says they must disclose it on the Good Faith Estimate, which they usually bypass by using a blanket “0-4%” to cover their butt. The actual YSP (not a range) must and will appear on the HUD1 Settlement Statement.
It will be on line 810 or 811…somewhere in the high 800′s.
Click on the images below (click again to return here) for an example. The first image shows the 2nd page of HUD1 Settlement Statement and down in the lines 800+…you’ll see nothing. So that loan closed with no YSP. That’s what you want your settlement statement to look like.
In the the next image, once again a 2nd page of HUD1 Settlement Statement, in the 800′s this time you’ll see the phrase Broker Rebate on the left…and all the way over to the right you’ll see a number…it doesn’t look like a dollar amount, but believe it is! This is the YSP cash compensation on this loan! (This is an actual closing before we capped all our compensation at 1%).
What you’re likely to find if you take the test below, is a charge on line 801 on page 2 of the settlement statement. Take the Origination Fee…and the charge on the YSP line…add those two numbers together to see what the broker made on your loan. Don’t forget to look through the settlement statement for any other fees payable to the broker too…things like Mortgage broker fee or processing fees.
Did You Get Ripped-Off On Your Last Loan?
As a test, grab the settlement statement from your last loan closing (assuming you closed with a broker…banks don’t disclose by law) and check out the lines reserved for YSP on the HUD1 Settlement Statement. Just as in the examples above, you’ll see verbiage that reads something like:
1. Yield spread premium paid to broker by lender or
2. Broker Rebate
3. YSP
4. POC
It’s disclosed on the far left hand side of the HUD1 Settlement Statement then move across to find the dollar amount. Charges outlined in this area of the Settlement Statement are what they call POC charges.
POC stands for Paid Outside of Closing. Meaning the lender is paying the broker his YSP dollars outside of closing…that is how YSP is legally described…”Broker compensation paid by the lender outside of closing”.
This is why it doesn’t show up in the Borrower Cost column on the settlement statement…and this is one of the ready-made “explain away” excuses you’ll hear should you challenge your broker after discovering it.
The loan officer might say,”Hey, if this was a charge to you we’d legally have to put in the Borrower Cost column.”
Sounds like a plausible argument, right? Sure, but it’s BS.
If the broker hadn’t put you in a higher rate than necessary, the lender wouldn’t be rebating him in the first place. So, even though the lender is paying it at closing, you’re paying it in the higher monthly payments you’ll be making to the lender for the next 30 years.
Don’t be shocked when you see a YSP of $4,000 and an Origination fee of $2,000 on a $200,000 loan amount on your next settlement statement. Those amounts represent 2% and 1% respectively on the loan amount which is a common percentage for YSP and origination.
Typically you won’t see the HUD1 Settlement Statement until closing day, so the average consumer doesn’t have a chance to spot it and get it removed. Actually the only way to truly avoid it is to locate an ethical mortgage broker and lock the rate originally without it. Since YSP is stuffed into your loan by selling you a higher rate…proper rate locking is the only cure. And then as a safety measure, ask to see the HUD1 Settlement Statement 24 hours in advance to be sure. You have that legal right provided by law.
Good Luck!
Author: Rob K. Blake
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Tags: HUD1 • POC • Settlement Statement • Yield Spread Premium
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Does HUD require that YSP be disclosed on the GFE of Mortgage Brokers and if so, do they also require that a dollar range (ie: $0-2000, $3000-$4000) be included on the GFE.
Thanks
Hi:
I am trying to get educated here. If I have a “loan originaltion fee” in my HUD settlement statement of, say, 1% in “buyer paid” column and nothing like what you show in your “paid outside of closing” area in the 800′s, does that mean I am not getting ripped off by the YSP procedure?