Released: November 24, 2007

Targeting yield-spread-premium abuse

Source: Jack Guttentag [Washington Post] (Free Registration)

When a mortgage broker steers a borrower toward a high-rate loan for which the broker collects a rebate from the lender, that payment is called a yield spread premium. When the broker does so without the knowledge of the borrower, that's abusive. Getting rid of yield-spread-premium abuse is one of the goals of legislation now moving through Congress, the Mortgage Reform and Anti-Predatory Lending Act. The legislation, co-sponsored by Rep. Barney Frank (D-Mass.), chairman of the Committee on Financial Services, was approved by the House just before Congress went on its holiday break. If it passes the Senate, will it accomplish its goal? In my column last week, I suggested a simple and enforceable rule: Lenders should be required to credit all rebates to borrowers. The borrowers would then have to authorize payments to brokers. I still think such a rule would work much better than what is in the legislation.

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