Has anyone used the YSP as justification for a modification?

[LHarveyMadman]

Just curious....has anyone pointed to an inappropriately high yield spread premium as evidence of predatory lending practices when he/she has applied for a modification?

If so, was using this approach successful?

I have to believe that there are many people on these boards whose loan officers were paid large YSPs by the lenders to put borrowers into toxic loans. This would be leverage against the lenders, because then they can't argue that the fault lies solely with the loan officers.

[LHarveyMadman]

Hmmm, due to the lack of response, I'm guessing that the YSP hasn't specifically been used as an argument in favor of modification. I would think that it could be used as evidence that someone has been sold a loan with an unnecessarily high interest rate.

Let me ask this: what are yield spread premiums (sometimes called a fee from the lender to the broker that is "paid outside closing" or POC) that people are seeing on their closing statements?

For those who don't know what the YSP is and why it is important, it is basically money that the lender pays to the broker in exchange for getting the borrower to sign a mortgage at a higher interest rate. So, if the wholesale interest rate is 5% but your mortgage broker somehow convinces you that you can only get a 7% interest rate, the lender rewards the broker by paying him/her a hefty fee.

[jacksjean]

I can totally agree with you on this point. I refi'd out of an ARM in 2/2007. Originally I was quoted something like a 6.5% interest rate. A couple of days before closing, my broker called me to say the lender had pulled another credit report on me at the last minute. The lender noticed that my FICO had dropped and that the only interest rate I was then qualified for was 7.801%. The broker asked me "Are you sure you can afford the higher payments?" What was I going to say at the last minute? All proceeds from the refi (close to $40K) were designated by the lender to pay off huge debts relating to the care of my disabled mother - a contingency of the loan. So I agreed and signed away...If I'm not mistaken, my spread is now 12 - 13% based on Libor.

[LHarveyMadman]

Do you have a copy of your closing statement (the HUD document)? Somewhere in the 800s section, there might be a line that indicates how much was paid by the lender to your broker. How much was paid?

Also, you should have received a copy the actual FICO scores that were pulled during your mortgage application process. You should find out what your original score was (the score that got you 6.5%) and what the new score was (the one that got you into a 7.801% loan). It is your right to know what the lender and broker are basing their interest rate on.

If there is anything fishy about the numbers you come up with, then you might have grounds for modification because of predatory lending practices. Also, since this was a refi and not a new home purchase, you should not have been pressured to agree to an unfavorable mortgage.

I don't know what you mean by your spread being 12-13%. Did you refinance into a new ARM? If so, what are the index, margin, and limit on your ARM?