 Mortgage Broker Loan Pricing Leading Up to the Financial Crisis: Were Yield Spread Premiums the Only Problem?M. Cary Collins, Keith D. Harvey and Peter Nigro Housing Policy Debate, 2021, vol. 31, issue 6, 875-890 Abstract: This article examines mortgage broker pricing in New York during the years leading up to the financial crisis. Broker compensation practices in 2005 through 2007, primarily the use of yield spread premiums (YSPs), led the Federal Reserve to promulgate new rules in 2011 that disallowed loan originators who receive compensation directly from the consumer from also receiving compensation from the lender or another party. This consumer testing rule passed because the board found that consumers were not aware of the payments lenders make to originators and how those payments can affect the consumer’s total loan cost. Focusing on total costs paid by the borrower, we find that minority borrowers paid more in total fees as a percentage of the loan amount when including or excluding YSPs. Moreover, white borrowers were more successful in substituting YSPs for up-front cash fees, resulting in a reduction in total loan fees compared with minority borrowers. This may reflect information advantages for white borrowers that allow them to more accurately assess the total cost of loans. Date: 2021 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:houspd:v:31:y:2021:i:6:p:875-890 Ordering information: This journal article can be ordered from DOI: 10.1080/10511482.2020.1862892 Access Statistics for this article Housing Policy Debate is currently edited by Tom Sanchez, Susanne Viscarra and Derek Hyra More articles in Housing Policy Debate from Taylor & Francis Journals |
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