Definition of Yield Spread Premium

Orange County Yield Spread Premium (YSP)

A form of compensation that a mortgage broker receives from a bank or mortgage banker for offering an interest rate to a borrower that is above the lender's par rate for which the borrower qualifies. The yield spread premium (YSP) must be disclosed on the HUD-1 Form when the loan is closed and if the broker plans on charging a YSP at the beginning of the loan application of the 3-day Good Faith Estimate that is ent to the borrower.

Mortgage brokers are compensated directly by borrowers when the borrower pays an origination fee, when the lender pays the broker a yield spread premium or a combination of these. If there is no origination fee, the borrower is most likely agreeing to pay an interest rate above the lenders published par rate. There is no such thing as a no-cost mortgage for the borrower. Paying an interest rate above market rates to compensate a mortgage broker/lender is not necessarily a bad thing for the borrower, as it can reduce the mortgage's upfront costs. If the borrower expects to hold the mortgage for a short time, paying a slightly higher interest rate can make more sense than paying points or other costs up front.

 

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