FEDERAL LEGISLATION
H.R. 1295 preserves consumers' access to affordable credit because it realizes that yield spread premiums are already captured in the APR threshold and do not need to be included again in the points and fees threshold. Unlike the Prohibit Predatory Lending Act (H.R. 1182) by Representatives Mill (D-NC) and Watt (D-NC), H.R. 1295 realizes that including YSPs in the points and fees threshold will artificially cause loans originated by mortgage brokers to be considered high-cost, while excluding other identical loans that cost consumers the same in terms of points and fees. Moreover, including the YSP in the points and fees threshold for mortgage broker originated loans only captures a subset of high-cost loans, thereby excluding lender and bank-originated loans. H.R. 1295 recognizes that all distribution channels should be treated in a uniform manner.
ISSUES/BACKGROUND
Curb abusive lending practices and create a uniform standard regardless of distribution channel - broker, banker, lender - chosen by the consumer. YSPs are defined as indirect compensation received from a lender to a broker in the form of a payment that represents the difference between the mortgage interest rate and the par interest rate. Virtually all originators receive additional compensation upon sale of the mortgage (spread above par). Practically all loans today are rapidly sold into the secondary market in order to reduce the interest rate risk to the originator.
YSPs provide consumers with choice. YSPs allow consumers the option of low-cost or no-cost home loans because colsing costs and broker and lender compensation are included in the interest rate, which is paid by the consumer over time. Without low-cost or no-cost home loans, many consumers, many of them first-time homeowners, would be unable to purchase a home because of upfront closing costs.
STATUS/OUTLOOK
H.R. 1295 and H.R. 1182 have been introduced in the House. Hearings for both bills are expected sometime this spring. DFWAMB was successful in ensuring that YSPs and borrower credits were not counted in the points and fees trigger in H.R. 1295. although silent on YSPs (i.e., no express exclusion), H.R. 1295 eliminates the Federal Reserve Board’s discretion to include any other charges it deems appropriate by regulation.
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