Payments to brokers don’t always involve ‘steering’

Future-Proof: Navigate Threats, Seize Opportunities at ICNY 2018 | Jan 22-26 at the Marriott Marquis, Times Square, New York

(This is Part 1 of a two-part series.) The Mortgage Reform and Anti-Predatory Lending Act of 2007 (HR 3915) is now winding its way through Congress. According to the bill's sponsor, Rep. Barney Frank, D-Mass, one of its important objectives is to prevent mortgage brokers from steering borrowers into higher-cost loans. Brokers steer borrowers into high-cost loans so they can collect a rebate from the lender. Lenders pay rebates on high-rate loans, and charge points on low-rate loans. Points are upfront payments to -- and rebates are upfront payments from -- the lender. A rebate retained by the broker is called a "yield spread premium," or YSP. On Nov. 7, 2007, wholesale lenders quoted the following prices to brokers for a 30-year fixed-rate mortgage: 6 percent at zero points, 5.75 percent at 1.25 points, 6.25 percent at 1 point rebate, and 6.5 percent at 2 points rebate. This means that the lender wants to be paid 1.25 percent of the loan amount for 5.75 percent loans, and ...