Yield spread premium may also be called a rate participation fee or par-plus pricing. This is a fee that is paid by a bank to a broker in return for the broker selling you a mortgage that has a higher interest rate than the rate for which you qualify. Even though you may have qualified for a specific lower interest rate, by charging the premium, the broker may sell you the higher rate in order to pocket a higher commission. Whether a yield spread premium is appropriate depends on what it is, why you are being charged, and which other fees you are being charged. The Boston real estate lawyers at Pulgini & Norton can advise people who are facing these fees.
Yield Spread PremiumsPar rate is the lowest rate that you can get for your mortgage without paying more in points to buy down the rate. When you do not want to pay points, you want the par rate. The difference between the par rate and the actual rate that you get is called a "yield spread." The yield spread premium serves as a premium provided by a wholesale mortgage lender to the broker or loan officer as an incentive to sell you a loan that has a higher interest rate than the par rate for which you qualify.
Each loan should be examined on its own terms, but you are not supposed to be charged much on either the yield spread premium or the loan origination fee. The regulatory landscape has changed with federal and state anti-predatory lending laws. When mortgage brokers are not charging an origination fee or other lender fees, they are permitted to receive a yield spread premium, but they may not get both.
Formerly, the greater the spread between the interest rate for which a borrower qualified, and the higher the interest rate that the borrower agreed to pay, the greater was the yield spread premium received by the broker. This gave brokers an incentive to sell higher interest loans to borrowers and to use double talk and other deceptive tactics. Many borrowers were not aware of this practice and were deceived while mortgage brokers made more money.
Today, a broker or an individual loan officer may not be paid a higher commission or yield spread premium by the wholesale mortgage lender if they sell the loan with the higher interest rate to you. They are not allowed to collect both the origination fee and the yield spread premium. If you are charged an administration fee, an underwriting fee, a processing fee, or any other lender fees, it is illegal for the loan officer or broker to collect a yield spread premium as well. However, when there are neither lender fees nor an origination fee, the broker or loan officer may collect a yield spread premium.
Explore Your Options with a Boston LawyerIf you do not need money to be credited to you to help pay your closing costs, or you do not want to pay points to buy down your rate, you may ask for the par rate. You must take a close look at the fees being charged for the mortgage product that you are buying, and you should consult a Boston attorney if you do not understand what the statement means. Yield spread premiums are just one issue of which consumers need to be cognizant when buying a home. Our firm handles property transactions, including issues related to mortgages, in Weymouth, Andover, and Cambridge, as well as other Massachusetts cities. For a consultation with a mortgage lawyer, contact us online or call us at 781-843-2200.