It’s that time of year again when everyone is digging out paperwork from various drawers, desks, cubbyholes, etc. to be able to create their annual tax return. For the best tax advice, seek the assistance of a tax professional, but for quick reference guide for some of the most common deductions allowed, see the following Washington Post article, Steps Toward a Happier Return
While yield spread premiums (YSP) are rebates offered each day by lenders for any interest rate over the daily par rate, the YSP is also the tool loan officers use to offset lender adjustment fees to the consumer. Every loan program with every lender can have “adjustments” to the interest rate or hits as they are called by loan officers. Whenever a loan officer issues a good faith estimate to a client, s/he must be sure to either charge for these adjustments or cover the cost by quoting a rate with YSP that will offset it.
The amount of loan program rate hits can be based on numerous factors such as credit score, loan size, loan-to-value (LTV), property location, loan type (cash-out refinance versus rate/term refinance), etc. These adjustments can total as little as .125% of the loan amount and go up to several percentage points of the loan amount. If paid by the borrower, this could mean thousands in extra fees for closing.
Industry practice is to cover the adjustments by the YSP rather than charge them directly to the borrower. Since YSP’s are usually odd numbers, if the hits or adjustments on a loan are .75% and closest YSP to offset this charge is .875%, the loan officer would be paid the .125% net rebate at settlement. This net rebate is paid outside of closing or POC and does not come out of the borrower’s funds at settlement. It is paid to the loan officer by the lender.
Next, loan program adjustments and their affect on interest rates.