Does the lender really pay the Yield Spread Premium?
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“You don’t need to worry about the amounts in that column. That’s being paid by the lender, not by you.”
“YSP isn’t paid by the borrower so you don’t need to worry about it.”
These are common phrases that might be heard by a borrower when asking questions about loan documents.
Does the lender really pay the Yield Spread Premium (YSP); or is it covered by the borrower through increased payments over the life of the loan? Even if you get straight answers to your questions when you are sitting at the closing table, in most cases, it’s really too late. Not many people at that point are willing to walk away from a home purchase even though they are surprised by $2,000 to $5,000 in additional cost when that is less than 1% of their purchase price; or $50 – $100 more in their monthly payment. The lender and mortgage professional know this and are confident that very few borrowers will: stop the sale of their current home because they “didn’t understand the paper work”; or walk away from the closing table and disappoint their family by telling them that the home that they shopped 6 months for and worked the financing for the past 3 months on isn’t theirs after all; or voluntarily spend another several months in a rental after all the work they’ve done in getting to closing.
The situation is not so dissimilar to the used car deal and “car dealer math” that we make so many jokes about – the difference is that used car payments last a couple years while mortgage payments last 30 years and the cumulative $100/month difference could have purchased multiple used cars. The need for transparency in home buying prior to arriving at the closing table is critical. This inherently means that the buyer needs to have some idea of how the mortgage professional is paid. The upfront stating of the price for the service being provided would be refreshing. Instead of the taking of money behind the borrowers back with out them being aware. With the lingering mistrust of the mortgage industry in general, transparency in the “mortgage math” could go a long way in restoring confidence to a still troubled industry.
