House Bill Bans Certain Types of YSPs

The House Financial Services Committee on Tuesday will mark up a mortgage reform bill that bans certain types of yield spread premium payments and requires lenders to retain 5% of the credit risk on subprime loans that are sold to investors."A creditor may not directly or indirectly transfer the credit risk it retains," according to the bill sponsored by committee chairman Barney Frank, D-Mass., and fellow Democratic Reps. Brad Miller and Mel Watt of North Carolina. The sponsors want to crack down on compensation that might encourage mortgage lenders and brokers to steer borrowers into higher cost loans. "Specifically, the new measure will strengthen restrictions on compensation paid to mortgage loan originators and brokers that is based on a loan's interest rate and terms, often called a yield-spread premiums," according to Rep. Miller. Marc Savitt, president of the National Association of Mortgage Brokers told National Mortgage News that he is okay with the language in the bill, noting that "this doesn't ban yield spread premiums outright" and instead "prevents people from making a couple of extra points" by putting consumers in higher cost loans. Mr. Savitt added that his reading of the bill indicates that it would require mortgage banking firms to disclose their "servicing released premiums" to the public as well. "The bill means you have to disclose everything," said Mr. Savitt. The legislation also mandates that all licensed and registered originators would be subject to a "federal duty of care" measure under the bill, obligating them to only make loans that a customer can afford. With refinancings, lenders would have to prove a "net tangible benefit."