Mortgage Brokers - Yield Spread Premiums, Are You Being Ripped Off ?

Congress definitely needs to continue in their efforts to start leveling the playing field against banks and financial institutions and the consumer.  Enough of constantly being squeezed by the (insert appropriate body part here)  !!

BTW, I had to re-write the headline for this one too.  The article below is entitled, "Mortgage Brokers and Borrowers: Congress Weighs Their Rights."   Do we really care whether Congress weighs something or not, or do we just want the damn things fixed ?  I could have also re-titled the article as, "Congress Working on Ways to Prevent You From Being Ripped Off By Mortgage Brokers"  : )    I will once again step down from my soapbox now. LOL


Real Estate News - HousingWatch.com (excerpts from article copied below)


Lenders would like to scratch an amendment to the financial regulation bill that tells mortgage retailers that they can't have their cake and eat it, too. The amendment would give lenders a choice of getting paid directly by the consumer through upfront fees, or by a higher interest rate for the customer -- getting what is essentially an advance from the lender against that extra future income from the loan. They can't get both.

Oregon Sen. Jeff Merkley (D), pictured above, introduced the amendment, which passed the Senate on May 12 by a 63-36 vote. It strikes at the heart of how mortgage brokers and loan officers make a living by targeting the "yield spread premium," a form of compensation to mortgage brokers. Loan officers employed directly by lenders get similar compensation for pushing higher interest rates, called an "overage." Yield spread premiums give mortgage brokers a powerful incentive to push borrowers into loans that are more expensive than they otherwise qualify for. Researchers analyzing subprime and other high-interest and high-risk loans made during the real estate bubble have found a lot of evidence that yield spread premiums led many borrowers to take out loans that would become difficult or impossible to pay, and pushed many who qualified for prime loans into taking out subprime mortgages instead.

The Merkley amendment keeps the one arguable benefit of yield spread premiums – they give consumers the ability to pay the broker's fees over time, instead of upfront – but makes it much more difficult for brokers to collect excessive payments from consumers. It also requires lenders to make sure borrowers have reasonable ability to pay back their loans.