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Yield Spread Premium—a percentage of a point that is offered as a rebate on particular rate of interest by a lender. Rate Discount—a percentage of a point charged to the borrower for a particular rate of interest.

Recent news on mortgage industry practices indicates consumers must become not only more educated about the borrowing process but more vigilant in reviewing the information provided to them by lenders. While regulators attempt to protect consumers with an ever increasing number of forms and mandated disclosures, real protection for consumers will only come when they are educated about the process and able to easily decipher the information they are given about their loan terms and settlement fees.

Hidden costs continue to be the bane of most consumers. One item that some consider hidden is the yield spread premium (YSP) that lenders quote on their daily rate sheets. There are those that would claim the YSP is a hidden fee even when it is disclosed on every settlement statement and clearly indicated as being paid outside of closing (POC).

While it is possible for unscrupulous loan officers to use this as a means to make more money on a loan than they would otherwise, reputable loan officers and mortgage brokers make borrowers aware of the YSP and disclose when and where it comes into play during their loan process.

To fully explain how this works, you must understand how lenders quote interest rates on a daily basis. Most lenders publish a rate sheet which shows a rate spread of somewhere between 1 and 2 points. On the lower end, a given interest rate will either cost the borrower a percentage of a point or will offer a YSP of a percentage of a point. The rate closest to or at 0.0 is considered the par rate for that day.

To illustrate, the chart below is what a lender will issue to its loan officers at the opening of each day. Rates can also fluctuate numerous times throughout the day as market conditions change. New rate sheets are re-issued during the course of the day as well. The following rate chart is from a rate sheet issued by a lender this past Friday. These rates are for a conventional conforming 30-year fixed rate mortgage.

Rate 15-Day 30-Day
5.125 3.125 3.250
5.250 2.375 2.500
5.375 1.750 1.875
5.500 1.125 1.250
5.625 0.500 0.625
5.750 0.000 0.125
5.875 (0.500) (0.375)
6.000 (1.000) (0.875)
6.125 (1.500) (1.375)
6.250 (2.000) (1.875)
6.375 (2.500) (2.375)
6.500 (2.625) (2.500)
6.625 (3.000) (2.875)
6.750 (3.125) (3.000)

Reading this chart a loan officer would know a borrower buying a new home wanting to lock a 5.25% interest rate for 30 days would have to pay the lender 2.5% in discount points plus any other adjustments the lender requires for property location, loan size, credit scores, program costs, etc. Par rate for this lender was 5.75% for a 15-day lock. If the borrower wanted 5.75% and to lock for 30 days, it would cost the borrower .125% of the loan amount in discount points.

If the borrower did not want to pay any points for loan origination or loan adjustment fees, the loan officer could quote the borrower a rate that offered a YSP to cover those costs. The yield spread is indicated by the parentheses around the numbers following the interest based on either a 15- or 30-day lock period. If the cost of origination and lender adjustments for credit, program, property location, etc. added up to 2.5% in points, the loan officer could quote a 6.5% rate of interest and lock for 30 days. With this rate, the borrower would have no fees for origination or lender loan adjustments at settlement which would significantly lower his/her closing costs.

Next, lender loan adjustments offset by YSP.

Insidious and subtle, software vulnerability and self-profligating viruses and worms are a danger to anyone with a personal computer. Whether you are an avid internet user or not, these programs can weaken and/or destroy your ability to maintain your computer’s security. An associate who is a principal with a local technology group has posted the following security warnings on their company website. The links below will take you to the group’s main webpage and to the security announcement page.

Anyone that utilizes a computer, for business or personal use, can click on the links provided and take advantage of the security warnings and/or solutions offered there. Forewarned is forearmed. If you are unsure about your computer’s vulnerability or the solutions offered, contact your system administrator or technology consultant for assistance in protecting your PC from exposure to these new threats.

The following Security Announcement is from the website of Convergent Technologies in Richmond, Virginia.

Security Announcements

Windows WMF Exploit

A serious new remotely exploitable vulnerability has been discovered in Microsoft Windows’ image processing code.

UNTIL THIS IS REPAIRED BY MICROSOFT, ANY ATTEMPT
TO DISPLAY A MALICIOUS IMAGE IN WINDOWS COULD
INSTALL MALICIOUS SOFTWARE INTO THE COMPUTER.

Sober Worm to Launch on January 6, 2005

W32.Sober.X@mm is a mass-mailing worm that uses its own SMTP engine to spread and lowers security settings. It sends itself as an email attachment to addresses gathered from the compromised computer. The email may be in either English or German.