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#22983 - 07/08/02 09:11 PM Yield Spread Premium
Bear Collector, CRCM Offline
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Bear Collector, CRCM
Joined: Nov 2000
Posts: 1,830
District of Columbia
If a Broker charges a yeild spread premium does it need to be disclosed on the HUD-1 as a "yield spread premium" (using those words) of can they call it a "fee" or use other terminology?
Thanks!
Leslie
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#22984 - 07/08/02 09:32 PM Re: Yield Spread Premium
Michelle D Offline
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Michelle D
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Terminator Country
I think from a legal and regulatory perspective you should call it a yield spread premium. If you call it something else, remember you'll spend time explaining that it really was a YSP. If you were to get sued, I'm not sure another terminology would stand up in could.

If you label it a "fee" you need to describe what it's for to keep it out of the fin charge calc and you could be charged with paying an unearned fee under RESPA.

That's my humble opinion.
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#22985 - 07/08/02 10:16 PM Re: Yield Spread Premium
Richard Insley Online
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Richard Insley
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Toano, VA
Wouldn't a YSP always be a Finance Charge?
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#22986 - 07/09/02 01:36 PM Re: Yield Spread Premium
rlcarey Offline
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rlcarey
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Galveston, TX
Richard,

When I first read this I thought - yup - you bet. But after I looked at it a little more, I don't necessarily think so. If you look at 226.4(a)(3), comment 3:

3. Compensation by lender. The rule requires all mortgage broker fees to be included in the finance charge. Creditors sometimes compensate mortgage brokers under a separate arrangement with those parties. Creditors may draw on amounts paid by the consumer, such as points or closing costs, to fund their payment to the broker. Compensation paid by a creditor to a mortgage broker under an agreement is not included as a separate component of a consumer's total finance charge (although this compensation may be reflected in the finance charge if it comes from amounts paid by the consumer to the creditor that are finance charges, such as points and interest).

So in essence, since the broker is theoretically only receiving a portion of the interest being charged to the customer and the interest is already included in the finance charge, the YSP could be excluded.

What do you think?
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#22987 - 07/09/02 03:56 PM Re: Yield Spread Premium
Michelle D Offline
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Michelle D
Joined: Oct 2001
Posts: 313
Terminator Country
Rclary - You have the right commentary, but Richard is technically right. Because the borrower is paying a higher interest rate so the YSP is already a component of the finance charge (interest). If you were to include the YSP as a separate item, you'd end up counting it in the finance charge twice, once as a prepaid FC and then as interest.

I should have been a little clearer on my initial post by saying a prepaid FC rather than just a FC.
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#22988 - 07/09/02 04:27 PM Re: Yield Spread Premium
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 79,926
Galveston, TX
I guess I assumed that whether it should be included as a prepaid was the question that you were asking and therefor I opined that it could be excluded. I guess by reading between the lines - something got lost in the translation.

PS. I wouldn't recommend describing it as a "fee" - broker fees are treated as prepaid finance charges and it will only cause you headaches trying to explain it later..
Last edited by rlcarey; 07/09/02 04:31 PM.
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