|FOR IMMEDIATE RELEASE:||
CONTACT: Jesse Jacobs
|Thursday, January 3, 2002||
Senator Paul S. Sarbanes, Chairman of the Senate Banking, Housing, and Urban Affairs Committee, will open the new year in the Committee with a continued focus on predatory lending mortgage practices by holding a hearing to examine the abusive uses of "yield spread premiums."
Yield spread premiums are payments made to mortgage brokers who get borrowers to sign up for loans at higher interest rates than they would otherwise qualify for, generally without their knowledge --the higher the interest rate, the higher the yield spread premium paid to a broker. A yield spread premium can be used legitimately, if a borrower chooses to pay broker costs through a higher interest loan. However, in many cases, yield spread premiums are used in a predatory manner to extract higher fees from the borrower. In these cases, the borrower pays the broker's fees out-of-pocket, and the broker also receives a yield spread premium from the lender, which is paid for by the borrower through a higher interest rate. These yield spread premiums seem to be prohibited referral fees under the Real Estate Settlement Procedures Act (RESPA). These predatory practices are found in both the prime and sub-prime market, as well as in FHA and VA loans.
Sarbanes is convening the hearing so early in the year because of actions taken by the Department of Housing and Urban Development (HUD) late last year to clarify its policy on the use of yield spread premiums. Sarbanes at the time said that HUD's clarification "would contribute to on-going abuses of low and moderate income home-buyers and will facilitate the predatory practice of steering homeowners to higher interest rate loans without their knowledge, and without any redress." In addition, HUD has indicated that it intends to promulgate a rule making by the end of January to further clarify its position on the issue. Sarbanes believes there is a need to discuss these issues publicly while HUD is considering how to proceed on yield spread premiums.
The hearing will be held:
TUESDAY, JANUARY 8, 2002
538 DIRKSEN SENATE OFFICE BUILDING
Scheduled to appear at the hearing are: