A Yield Spread Premium (YSP) is a payment which a mortgage broker receives from a lender when the broker originates a loan with an interest right higher than the market rate (otherwise known as the par rate). YSPs are often the primary source of compensation for mortgage brokers, and therefore particularly interesting among brokers.

The size of the YSP payment a lender makes to the originating mortgage broker depends upon the size of the difference between the borrower’s interest rate and the market rate. In other words, originating a loan with a higher than market interest rate will compensate a broker with a higher commission.

Understandably, YSPs are a hot topic among legislators, consumer advocacy groups, and mortgage broker professional organizations. Most lenders have a maximum YSP that any broker can earn, which effectively caps interest rates on any given loan product.

Published by Erik at Mortgage Broker Land