In the 2007 legislative session the “high-cost loan” threshold under 24-1.1E (a) (6) was modified. Specifically, House Bill 1817 established that the fee threshold calculation would include “total points and fees” to determine if the points and fees are more than 5% of the total loan amount. This change was intended to include the yield spread premium in the 5% points and fee calculation.

YSP Prohibited

An additional change amended the list of prohibited activities to limit certain compensation in connection with “Rate Spread Home Loans”. House Bill 2188 prohibits compensation provided by the lender or received by the broker which is based upon changes in the terms of the loan, other than compensation based upon the principal balance of the loan.

It is believed that this eliminates the payment, or receipt of, what we commonly refer to as yield spread premiums. However, it does not mean that, as a mortgage broker, you cannot receive backside compensation from a wholesale lender, if the payment is based upon the principal of the total loan amount.

Rate Spread Home Loan

First and foremost this new provision specifically applies only to “Rate Spread Home Loans.” As such, you need to fully understand that a loan will be considered a Rate Spread Home Loan if it has both of the following characteristics:

1. The difference between the APR and the yield on US Treasury Securities, having comparable periods of maturity, is either equal to or greater than 3 percentage points (3%), if it’s a first mortgage and 5 percentage points (5%), it it’s a subordinate lien; and
2. The difference between the APR for the loan and the published conventional mortgage rate is either equal to or greater than one and three quarters percentage points (1.75%) if the loan is secured by a first lien, or three and three quarters percentage points (3.75%) if the loan is secured by a subordinate lien.