Fee Puts Mortgage Brokers On Defensive
Fee Puts Mortgage Brokers On Defensive - From the Appraisal Institute
As the House attempts to craft a bill to curb predatory lending, the flourishing mortgage broker industry is on the defensive over a common fee used in the home loans of many subprime borrowers.
House Financial Institutions Subcommittee Chairman Spencer Bachus, R-Ala., has found himself stymied in his bid to move a consensus bill regulating a little-known lending practice referred to as a yield spread premium (YSP). Under the practice, mortgage brokers are eligible to receive fees from lenders for issuing a loan with a higher interest rate than the minimum rate the borrower would have qualified for.
For example, if a borrower could qualify for a loan at 7 percent, but was steered into a loan at 7.5 percent, the broker would be eligible for a payment of 1 percent of the total loan amount. On a $200,000 loan, for example, the fee would be $2,000.
Consumer activists and some lawmakers call YSPs nothing more than a kickback, part of abusive lending practices that are lightly regulated and cost Americans more than $9 billion annually.
Rep. Brad Miller, D-N.C., has sponsored a bill that would include YSPs as part of a trigger that would determine whether a subprime mortgage would be classified as a high-cost loan under federal law, would ban certain lending practices such as prepayment penalties, and would force more disclosure. But Bachus did not include similar language in a draft bill he released in March.
The mortgage broker industry strongly opposes such a move, said Roy DeLoach, senior vice president for legislative affairs for the National Association of Mortgage Brokers. The group contends YSPs provide consumers with more choice in mortgages, such as allowing the borrower to provide little or no money down for a loan in exchange for a higher interest rate. The industry argues that a YSP might provide the only opportunity for someone with poor credit to secure a loan.