What Is Yield Spread Premium (YSP)?

Yield Spread Premium, or YSP, is the mark-up between the wholesale rate and the interest rate. Much like one can buy a piece of equipment wholesale, and sell for a premium, the same applies for mortgage of rates. The loan officer, whether a broker or agent of a retail bank (ie Bank of America, Wells Fargo), acquires the mortgage note at wholesale from the wholesale division of a bank, marks up the rate before selling to the consumer. The wholesale division of the bank pays the loan agent a premium for selling the mortgage note at a higher rate then wholesale. For example, the wholesale rate on a 30-yr fixed note might be 5.50%, and the wholesale division of the bank might offer the agent $4,000 if the note sells for 6.00%, or $6,000 if the note sells for 6.25%. The $4,000 and $6,000 compensations are the Yield Spread Premium. This YSP is often hidden from the borrower- and since it is hidden from the borrower, it opens the opportunity for Yield Spread Premium abuse. For more discussion on this topic, read the Mortgage Professor articles, "Can Mortgage Points Be Negative?" and "Eliminating Yield Spread Premium Abuse".