The topic of “Yield Spread Premium” has become quite controversial over the past several years and the Federal Reserve (acting to implement the Truth-in-Lending Act and Home Ownership and Equity Protection Act) announced on August 16, 2010 its final rules regarding compensation of mortgage loan originators/brokers. The new rule applies to both mortgage brokers and mortgage loan officers employed by depository institutions (such as a bank or credit union that originates loans for a third party lender). The Federal Reserve Press release is reproduced below. The effective date of this new regulation is April 1, 2011. The Federal Reserve’s rule is set out at http://edocket.access.gpo.gov/2010/pdf/2010-22161.pdf.
The final rule prohibits the payment by the lender of a “yield spread premium” to a mortgage originator/mortgage broker. A “yield spread premium” is the compensation paid to an originator/broker by the lender when the borrower accepts an interest rate higher than the rate required by the lender. Under the new rule, the originator/broker may not receive compensation based on the interest rate or other loan terms. Originators/brokers may continue to receive compensation based on the size of the loan (the 1% Origination Fee).
The new Federal Reserve rule also prohibits an originator/broker who receives compensation directly from the borrower/consumer from also receiving compensation from the lender or another party. The originator/broker is prohibited from “steering” a consumer to accept a mortgage loan that is not in the consumer’s interest to increase the originator’s/broker’s compensation.
This new Federal Reserve regulation is another blow to mortgage originators/brokers and even extends to loan officers of regulated lenders who act as mortgage brokers. When this regulation takes effect in April, 2011, the payment of the yield spread premium set out in the Initial Fees Worksheet will not be allowed.
If you have any questions regarding this new regulation, please call Morton Baird, Karen Miller or Kim Selsor at (210 828 5844.
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