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With the recent Real Estate Settlement Procedures Act (RESPA) changes to the good faith estimate (GFE) effective January 1, 2010, it’s seems time for mortgage loan officers to let go of the Yield Spread Premium (YSP) dependence. For decades, real estate agents have been making their living charging a flat fee that is always disclosed up front when the real estate contract is signed by the seller. There is no mystery surrounding the fee, and the Realtor has no opportunity to manipulate or hide anything from the seller. Some loan officers have depended far too long on their ability to direct borrowers into interest rate commitments that may not have been in the optimal interest of the borrower, but certainly may have lined the pockets of the loan officer.   This is not to say that all loan officers have been lining their pockets, but the time seems to have come where full, upfront disclosure and transparency of the loan transaction details is overdue.

Loan officers can easily charge a flat fee, a fixed percentage of the loan amount, or a fee on some sliding scale based on the strength of the borrower, disclose this fee structure up front, and then allow the borrower to see the best rates the loan officer has to offer, and allow the borrower to make their own choice.   In addition, with the YSP now required to be given back to the borrower as a credit toward closing costs, if the borrower sees all interest rate alternatives side by side with the available YSP and payment information, they can make an informed and balanced choice that works best for their particular situation.   If the borrower wants a little higher interest rate that throws back a higher YSP credit to cover closing costs, let that be their decision and not left in the hands of the loan officer.   In this way, the loan officer is assured of getting paid a fair and reasonable fee for the loan, and can help the borrower make judgments that are focused away from how much the loan officer will make on the deal.

It’s seems time to release the death grip on YSP and transition to a flat fee or percentage of the loan amount fee for the loan officer that is disclosed on the front end of the transaction, not only for the benefit of the borrower, but for the reputation and credibility of the loan professional.