Yield Spread Premium

Definition of "Yield-Spread Premium"

Betty  Smith

A payment made by a lender to a mortgage broker for delivering an above-par
loan. A par loan is one on which the lender charges zero points. Lenders charge points on loans
carrying interest rates below that on the par loan and pay points or rebates on loans carrying rates
above that on the par loan. On loans involving mortgage brokers, the rebate on above-par loans is
credited to the broker, and is referred to euphemistically as the 'yield-spread premium'' (YSP). YSPs
are a major part of broker income. Because borrowers pay YSPs indirectly in the interest rate, they
resist them less than they would broker fees paid directly out of their pockets. But a comparable
form of 'rebate abuse' also occurs with lenders.

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