Mortgage brokers can breathe a sigh of relief after a new federal policy, unveiled this week, will allow them to maintain an oft-misunderstood compensation practice, said industry leader Debra Killian.
"We could have really gotten killed here, and we didn’t," said Killian, a board member for both the National Association of Mortgage Brokers (NAMB) and the Connecticut association.
The controversial is centered on yield spread premium (YSP), which is usually described as the extra compensation a broker gets from steering a customer toward a higher-interest loan. But while that steering does exist, the NAMB protested that yield spread premium referred to consumer-friendly payment that were also vital to small brokerages.
NAMB describes YSP as a way for consumers to forgo paying closing costs and instead take a higher-interest loan that folds those costs into the loan repayments themselves. That helps would-be homeowners who would struggle to pay the up-front fees, according to the association’s fact sheet on the topic.
While some media reports have proclaimed the death of YSP this week, Killian said the amendment only prohibits steering a customer to a less-favorable loan for higher compensation. She spoke to a group of mortgage professionals in a conference call this morning.
YSP’s continued existence means borrowers can still choose to pay fewer or no closing costs, but brokers now have tighter restrictions on how they present these options to their borrowers.
The broker must present the consumer with three options: the lowest interest rate possible for that borrower, the lowest amount of origination fees possible, and finally, the lowest interest rate for which they could qualify for loans with no restrictions.
Overall, the restrictions are meant to prevent brokers from moving rates around without the customer fully understanding what they mean.
The restrictions cover all originators, Killian said – including brokers, mortgage lenders and loan officers working for creditors. That also includes retail loan originators working at banks. The only professionals not covered are lenders who fund the loan themselves with no intention to sell.
Plenty of questions remain on how the details of these new restrictions will come to pass before they are enacted on April 1, Killian said.
Still, she urged members to pay sharp attention to all regulatory changes, to stay active with CTAMB and NAMB, and present a professional, unified front when lobbying for their interests.
"We really need to stick together," she said.
