Yield Spread Premium
Candlefocus EditorThough YSP was seen as a way to reduce loans while providing extra compensation to the mortgage broker, this extra fee was often hidden in the overall closing costs, making it difficult for property buyers to estimate how much they had to pay just for the YSP. In 1999, the Yield Spread Premium Reform Act was passed in order to put an end to situations where borrowers had to pay exorbitant YSP fees and to protect them when signing a contract.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in the 2010, imposed further restrictions on YSP fees, effectively banning the practice in some cases. The Act set limitations on YSP fees and also required all lenders to provide a good-faith estimate of all closing costs, including any YSP fees. This implemented an additional layer of protection, so borrowers knew exactly how much money they’d have to pay for their mortgage.
In short, YSP is a fee required by the mortgage broker for arranging a higher-interest loan for borrowers, which can sometimes be hidden in the overall closing costs. The Yield Spread Premium Reform Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act prohibit exorbitant fees for YSP and require lenders to provide full disclosure of all closing costs including any YSP fees.