Mortgage Broker Yield-Spread Premium Under Scrutiny

State investigators are taking a hard look at yield-spread premiums, the commissions that lenders pay mortgage brokers for bringing in a borrower.

If you weren't aware, mortgage brokers are "middlemen" who match buyers with a mortgage loan through a lending institution. Mortgage brokers do not have money to lend, lenders do!

The same nationwide task force of prosecutors who in January announced a $325 million settlement with Ameriquest Mortgage Co. for alleged deceptive loan practices is now investigating yield spread premiums. Tom Miller, Iowa's Attorney General, says the investigation is in its early stages, but the practice, which now involves an estimated 60 percent of home loans, is a growing issue. “It may constitute a deceptive practice. Consumers are paying more than the fair market price of their loan,” Miller says. Some in the industry concur that the practice deserves a hard look. "Most players in the industry would agree that it's time to reform the disclosure of the yield spread premium," says Howard B. Glaser, counsel to the National Alliance of Independent Mortgage Bankers.

While we're on the subject of lending, before applying for a mortgage loan you might ask the loan officer: "do you and your company charge overages for your loans?" An overage is the difference between the actual market interest rate versus the interest rate the loan officer charges. Over thirty years even a slightly higher interest rate will cost you thousands of dollars in extra interest. Some lenders play the overage game, some don't.

Just so you know.