North Carolina Bans B&C Release Premiums
North Carolina Gov. Mike Easley has signed a bill that bans lenders from paying yield-spread premiums, sometimes called servicing-release premiums, on subprime mortgages starting Oct. 1.
This makes North Carolina the first state to ban YSPs, which are a form of mortgage broker compensation that is based on the interest rate of the mortgage.
Consumer groups like the Center for Responsible Lending supported passage of House Bill 2188. These groups contend YSPs provide brokers with an incentive to steer borrowers into higher interest rate subprime mortgages.
"By getting rid of yield-spread premiums, we are eliminating one of the root causes of the foreclosure crisis," said CRL senior counsel Chris Kukla.
National Association of Mortgage Brokers executive director Roy DeLoach noted the North Carolina law simply allows banks and other lenders to increase the interest rate without telling the borrower how much they are making on the transaction. Brokers are required to disclose the amount of the YSP.
Meanwhile, consumers will have to pay the broker's fee upfront, instead of paying it over time as part of the interest rate.
"This is nothing more than a law reducing competition under the cloak of consumer protection," Mr. DeLoach said. "This will only cost North Carolina consumers more money." (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/