Newly-approved federal regulations target a mortgage brokers/bankers/loan officers that experts say contributed heavily to the mortgage meltdown and ultimately the greatest financial recession since the Great Depression.
Effective April 1, 2011, the Federal Reserve will prohibit ALL loan originators from receiving compensation based on a borrower's interest rate or other loan terms. That will save consumers thousands of dollars on a mortgage.
In the past, loan originators were compensated, in part, for steering borrowers to more expensive mortgages. The more costly the mortgage, the higher the so-called "yield spread premium" (YSP) payment.
They pretented that YSPs helped borrowers avoid additional closing costs. They rarely did.
CRL also found in the 2004 study, "Yield Spread Premiums: A Powerful Incentive for Equity Theft":
• The average amount of a YSP was about $1,850 per loan, the largest part of a broker's compensation. Broker's earned an average $1,046 more on loans with YSPs than on loans without the fee.
• Loans that included YSPs cost borrowers an additional $800 to $3,000 more than loans without YSPs.
• There was no legal requirement to inform borrowers about the connection between the YSP and the interest charged on a loan.
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