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Bill That Would Prohibit YSPs, NIVs Advances – Senate approves amendments to S. 3217

May 12, 2010

By MortgageDaily.com staff

The U.S. Senate today voted to eliminate yield-spread premiums and no-income-verification loans.

An amendment to S. 3217 approved today in the Senate would prohibit YSPs, published reports indicate.

Mortgage brokers have relied on YSPs to enable lower out-of-pocket fees for their customers.  But, as subprime lenders used such payments to lure brokers, some borrowers were placed in programs that weren’t necessarily in their best interests but enabled hefty broker fees.

In addition, “liar loans” reportedly would be prohibited under the amendment.  Commonly found on Alt-A menus, these mortgage programs enable no verification of the application income and asset data.

Originators turned to Alt-A and subprime programs after the 2003 refinance wave dissipated.  The looser lending under such nonprime programs helped fuel the real estate bubble that eventually popped.

Republicans were reportedly unsuccessful in eliminating a provision that would require lenders to retain at least a 5 percent interest in mortgages that they securitize.

Mortgage bankers oppose the skin-in-the-game provision and claim it will raise mortgage rates by as much as 3 percent, according to attendees at a recent legal issues conference.  Lenders also warn that such a provision would drastically alter the mortgage marketplace by reducing the number of smaller players in the industry.

click here to see a copy of the bill..

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