Carolina First Mortgage Blog

HR 1728

I was disturbed by reading the following article.  http://www.housingwire.com/2009/03/27/new-bill-cracks-down-on-predatory-lending/

If passed this bill would hurt home owners and home buyers by effectively eliminating competition and allowing less choices for consumers.

Yield Spread Premium

Yield Spread Premiums (YSP) are funds paid to brokers and lenders by the funding company, outside of closing.  These monies are derived from an agreement between the buyer and home owner.  The home owner will accept an interest rate that is slightly higher than the par rate.  By doing this the home owner can offset some of the upfront money for closing costs they would have to bring to closing.  They effectively finance some or all of their closing costs over the life of the loan.

Why would eliminating YSP be bad?

By eliminating the yield spread consumers would have to bring more cash to closing on a purchase.  This would eliminate a portion of home buyers due to lack of funds.  Many home buyers have already been eliminated by the credit standards being tightened and the credit crunch.  They have also been hurt by extremely slow turn times by the lenders by having to pay for re-lock after re-lock.  I have heard horror stories of loans taking 6 months to close on a squeaky clean borrowers.  Eliminating yield spread will all but destroy the mortgage broker industry.  Mortgage brokers depend on YSP as an income stream for about 50% of their funds.  By eliminating the mortgage brokers would allow the banks to operate without competition.  Also, it would give consumers less choices.  Since when does less competition and choices equal a better deal for the consumer?

Bob Bacon

Carolina First Mortgage

bob@carolinafirstmortgage.com