What is Yield Spread Premium (YSP)?

Some people say it's the mortgage industry's dirty little secret. In reality, sometimes it can be a bad thing, but most of the time it's not. So, what is yield spread premium? Yield spread premium is loan revenue paid to a mortgage brokerage from a lender on certain mortgage transactions. YSP is paid by the lender to a brokerage when a brokerage offers an interest rate to a borrower that is over the wholesale rate. This wholesale rate is also referred to as a par rate.

The easiest way to understand why yield spread premium is available to mortgage brokers, and how it works, is to compare its function to a retail store. Think of a retail store that buys a product from its distributor at a wholesale price. The retailer will then mark up the price of that product by a certain margin so they can make a profit when they resell it. That's how wholesale and retail works. Mortgage brokers have access to wholesale mortgage rates and will often “mark up” those rates to make a profit from the lender. This is perfectly acceptable unless the rate is being “marked up” so much that the rate becomes unfair to the borrower.

In a nutshell, yield spread premium is an accepted source of income generating revenue from a loan transaction paid to a mortgage broker. If you see on your good faith estimate that the broker is receiving yield spread premium up to or slightly over 1% of the loan amount, you should have lower or no origination fees on your mortgage. If you find that they are not receiving any yield spread premium, expect to see a minimum of a 1% origination fee on your loan. If there is no yield spread premium disclosed on your good faith estimate, ask your loan officer to disclose it. Banks and correspondent mortgage brokers are not required to disclose yield spread premium.

If you want to speak with an upfront mortgage professional that has signed a written agreement to cap the origination points and YSP they can earn on every mortgage transaction, speak to a BeatMyBroker.com approved mortgage broker.

You can also read more about yield spread premium in the BeatMyBroker.com mortgage blog.

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