What does 'YSP' refer to in the context of MLO compensation?

'YSP' stands for Yield Spread Premium, which is a crucial concept in the context of Mortgage Loan Originator (MLO) compensation. Yield Spread Premium refers to the compensation that a lender pays a mortgage broker or MLO for locking in a mortgage interest rate that is higher than the par rate (the base rate at which the lender can lend without a premium or discount).

When a borrower agrees to a higher interest rate, the lender can provide the broker or loan officer with a fee based on that higher rate, which serves as an incentive for the broker to recommend specific loan products that may yield more profit for the lender. This practice allows MLOs to be compensated based on the interest rate spread, aligning their interests with the lender.

Understanding YSP is also essential for compliance with various regulations, as it impacts how MLOs must disclose their compensation to borrowers and maintain transparency in the lending process. It's important for MLOs to communicate any YSP they may receive to borrowers to ensure that they are informed about how interest rates and associated costs affect their loans.