So long “Yield Spread Premiums” as a device to pad the bottom line of mortgage brokers and banks:
“The Federal Reserve on Monday moved to end a controversial lending practice that had helped propel the housing boom to unsustainable heights and then accelerated its collapse.
The Fed announced that it was adopting new rules banning yield spread premiums, which allowed mortgage brokers and lenders to gain additional profit from loans by charging borrowers higher-than-market interest rates.
Michael D. Calhoun, president of the Center for Responsible Lending, described the action as “a real milestone,” but he said that he had been trying to convince regulators for at least 15 years that yield spread premiums were no more than illegal kickbacks.
Traditionally, mortgage brokers were paid directly by the home buyer. The rise of the premium allowed the brokers to be compensated by the lender as well. Lenders in effect started paying bonuses to brokers who brought them high-interest loans that were naturally coveted by mortgage investors.”
The full article –
http://www.nytimes.com/2010/08/17/business/17mortgage.html?_r=2&ref=business
