FYI: This is Paul Muolo’s first attempt to apologise
as noted belosw:

This Just In
By Paul Muolo

Readers: You can stop sending me emails on the ‘yield spread premium’ issue. Next weekend in my column I will clarify the issue more but first a short clarification: from what I have been told by the scores of brokers/others sending me emails, the phrase ‘yield spread premium’ does not always show up on the closing documents. Scores of brokers wrote, telling me that the phrase ‘yield spread premium’ does, in fact, show up on the HUD-1 form but on the ‘Good Faith Estimate’ form it might be called something else. (On the GFE is goes by different names, I’m told.) In general, the amount paid from the lender to the broker is included on the ‘paid on closing’ or POC line. I am sincerely sorry for the confusion my column caused. Perhaps, that’s what wrong with the entire debate: brokers, trade officials, academics and politicians refer to it as ‘YSP’ but the phrase ‘YSP’ isn’t necessarily on the GFE. Or is it? Here’s the scary part: from the emails I received it appears that half of all brokers actually explain to the client what the POC line means, while the other half do not. Of course, brokers continue to complain that mortgage bankers do not disclose their servicing-released premiums…

Then as noted below is the 2nd attempt to apologise

http://www.brokeruniverse.com/hearing/

By Paul Muolo

If you thought that yield-spread premiums might be outlawed by Congress, think again. In an interview with National Mortgage News this past week George Hanzimanolis, president of the National Association of Mortgage Brokers, said the trade group has gone over the YSP issue with Rep. Barney Frank, chairman of the House Financial Services, and believes Rep. Frank finally understands YSPs and how they benefit consumers. “He understands the need for it,” said the NAMB chief. For the full story see the Monday edition of NMN. Don’t subscribe? Call: (800) 221-1809…

As for YSPs and how they are disclosed, I didn’t get it right last week. I also got a quick education from several brokers and bankers on disclosures and how YSPs can be used for good. In total, I received 500 e-mails — most of them professional in their tone except for a certain reader who shall remain nameless. Yes, YSPs are disclosed on the HUD-1 form and on the good-faith estimate. The only thing I can say in my defense is that I’ve heard too many stories about some brokers not fully explaining (verbally, that is) the YSP to the consumer prior to closing. Last week, I spent quite a few hours interviewing brokers and bankers about YSPs, including Mr. Hanzimanolis and A.W. Pickel III, the former NAMB chief. One question I asked brokers and bankers is this: does the phrase “yield spread premium” appear on the HUD-1? Mr. Pickel and others told me that it did. So, I went out and got me a HUD-1. Lines 803 – 813 are blank and that’s where the phrase YSP is supposed to appear. “It’s typed in by the banker,” one broker pointed out. Mr. Pickel noted that the YSP language may not necessarily appear on the GFE. “It might be called ‘compensation to the broker’” or something like that, he said. A kind banker/broker named from Virginia named Roland explained that brokers don’t have much control over what goes in the “boxes” on the closing documents. Another pointed out that the mortgage banker (the funder of the loan) controls the docs, not the broker. Roland also said brokers, in general, “don’t need to be making four points on a deal.” That sentiment was echoed by others. But I will concede the argument many brokers made that YSPs (depending on how they are structured) can help consumers get into a house by reducing closing costs. The closing costs are “paid for” by the consumer paying a higher note. The higher the note rate, the higher the yield spread, which is “paid outside of closing” or POC. I have no problem with YSPs — and I hope that any fair-minded politician would feel the same. One thing seems clear: loan brokers that aren’t verbally explaining YSPs (broker compensation, take your pick) to the consumer had better start. I heard from may good brokers out there who feel their reputations — which they’ve worked hard for many years at building — are being in endangered by “bad” brokers who helped facilitate crummy YSP transactions. And finally, the chief complaint I received last week is this: why aren’t mortgage bankers disclosing their servicing-released premium?
——————————————————
Paul,

Your talking about my livelihood as well as numerous other Mortgage Professionals across the country!!!!!

Your miscommunication is totally without merit and erroneous. Regarding “This back-end payment is not disclosed on the settlement sheet and the homebuyer is in the dark. ”

Once again I have attached to this email disclosures on YSP or broker compensation that is explained and given to applicants at
time of application and also reflected on the closing document known as a HUD 1 Statement.

I would strongly suggest that SOURCE MEDIA – James Malkin ( / NATIONAL MORTGAGE NEWS DOES A MAJOR CORRECTION ON
THIS HUGE ERROR ASAP.

My original letter was faxed, email, and mailed to http://www.sourcemedia.com/contact.html

Still seam’s that Mr. Muolo (M&A) Data Editor for National Mtg News / Source Media is questioning that the compensation of a profit by a YSP etc

by the Mortgage Broker community is not being fully disclosed to the “client” as you call it up front. That is where you apparently still don’t get it….

Once again I strongly suggest that you review my attachment as I have sent you on several occasions along with a formal letter from my office requesting

a complete retraction to your major communication error. Your implying that the “client” is not informed on compensation to the Mortgage Broker.

If you did your homework and got your hands on the disclosures as I have attached above you would have never made the implication that the

“reward” as you call it would be in question.

Regards,

( Member of NAMB)

I think that anyone who doesn’t know the name Lew Ranieri and can explain how he fits into this mortgage crisis shouldn’t be making legislation on it and I know most have never heard of him, let alone know what he did. (he created mortgage backed securities and that is detailed in the book Liar’s Poker)

Second, you are right. Somehow, the politicians think that if mortgage brokers are paid for their services that is wrong but all right for everyone else.

How would a restaurant owner like it if Congress told them that fish must be sold at cost but they can make profit in beef?

Finally, Congress has just as much fault in this mess as the rest of the players. The reason it is so easy to rip someone off is because there is so much paperwork to sign. The reason there is so much paperwork to sign is because of the endless regulations that have been created. How is Congress planning on fixing this mess, more regulation. For the consumer more regulation means,

YOU HAVEN’T SIGNED ENOUGH PAPERWORK YET!!

I don’t think my buddy would appreciate it if I showed up in his lab and started playing with the chemicals, and yet most people see no problem with naive and uneducated legislators messing around in an industry they know nothing about. Here is my definitive piece on the players in this mess and why each is or isn’t targeted…

http://www.proprietornation.blogspot.com/2007/11/from-boon-to-crisis-truth-about.html

Explanations of YSP from various perspectives for consumers abound. Second, my profit margin is no one’s business but my own, I have one grocer down the street who charges $20 a pound for filet, another down the road who charges $14. I don’t care what their wholesale costs are and I don’t make ridiculous demands that they disclose them. I just buy the meat I feel is the best deal. I don’t mind paying extra for the better service and nicer store, but it’s my choice to exercise. As easy as it is to shop rates these days anti YSP arguments are particularly specious. The only way a borrower will pay too much for financing is by not making use of the avalanch of information already out there.

And yes, I know lenders who are millionnaires now, not one of whom worked less than 60 hours a week for years, worked every open house, attended every closing, invested in marketing, found fabulous assistants and paid them well, and adhered to the highest standards because when the boom ends it’s your loyal, happy clients who will see you through. And that’s not Pollyanna crap. I believe B-Speak refers to it as enlightened self interest.

Two years ago when the mortgage business was booming we heard certain anecdotal stories about some loan brokers earning $1 million a year or better. Was this fact or fiction? If you have any information about millionaire brokers drop me an e-mail at Paul.Muolo@SourceMedia.com…

The reason I ask the millionaire question is tied to yield-spread premiums. Rep. Barney Frank, chairman of the House Financial Services Committee would like to do away with yield-spread premiums, which has many a broker red with rage. So what exactly is a yield-spread premium? Mortgage professionals — especially brokers — know the answer to that question but I’m not sure Joe Sixpack does. Correct me if I’m wrong but this is how YSPs work: the going rate on a mortgage is, say, 7%. The broker gets a point “upfront.” The point is disclosed on the settlement sheet. Then there’s the “back-end” fee or YSP. Even though the broker can get a loan for the customer for 7% he talks the client into a 7.5% loan for example. The client might agree to this for whatever reason. (Feel free to fill in the blanks.) Because the note rate is 50 basis points higher than the going rate the wholesaler rewards the broker for this extra “yield.” The broker is rewarded through the YSP, which is paid by the wholesaler on the “back-end.” This back-end payment is not disclosed on the settlement sheet and the homebuyer is in the dark. If the YSP was disclosed on the settlement sheet the homebuyer might look at the item and say, “What’s this for?” And the broker might answer: “Because I got you a mortgage at a higher rate.” I’m not taking sides here but this is how the debate is being framed. Are YSPs right or wrong? Should the payment to the broker be disclosed? One thing seems certain: YSPs are the lifeblood of some brokers. If they go away will brokers and the National Association of Mortgage Brokers disappear? You tell me…