NYS Law Abolishes Yield Spread Premiums

Effective August 17, 2012, Governor Cuomo signed A.7329/S.886, which became Chapter 404 of the Laws of 2012.  The law adds Banking law Section 3-a, which states that a person who makes or brokers a home loan may not receive compensation based on, or varies with, any of the loan terms.  Compensation based on the loan amount (principal) is permitted.

The amendment also bans yield spread premiums - compensation paid by a lender to a mortgage loan broker based on the difference between a stated interest rate or loan yield preferred by the lender.

Brokers being paid on the basis of a yield spread premium, as opposed to a percentage of the loan amount or points, may be inclined to steer applicants to lenders offering loans at higher rates, thus acting in their own or the lender’s interests and not the interest of their applicant-client.