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Mortgage brokers (or loan officers/brokers) get paid by commission in 2 basic ways. They are; 1) Yield Spread Premium and 2) Origination Fee. Both Yield Spread Premium and Origination Fee (also called mortgage points) are paid by the wholesale lender or mortgage lender as a percentage of the loan amount.

Yield Spread Premium (YSP)

Yield spread premium (YSP) is the fee paid by the wholesale mortgage lender to the loan broker in exchange for the broker bringing the loan to the lender. The YSP is paid as a percentage and is based off the interest rate obtained in the loan. In general, the higher the interest rate the loan broker gets the borrower to take than the higher the YSP.

YSP and Commission Examples:

$100,000 loan
Interest rate = 6.00% with a YSP of zero (par rate). Commission = $0.00
Interest rate = 6.50% with a YSP of 1%. Commission = $1,000
Interest rate = 6.75% with a YSP of 1.5%. Commission = $1,500

You can see from this example that it is in the loan broker’s best interest to get the borrower the highest rate and in turn this gets the loan broker the highest YSP. The higher the interest rates than the higher the commission.

Origination Fee (also called mortgage points)

A loan origination fee is paid to the loan officer or broker who initiates and completes the loan transaction with the homeowner, and is paid out only if and when the loan funds.

Example:
For a loan origination fee of 1% on a $250,000 loan, the commission (fee) is equal to $2,500.

Brokers and banks may or may not charge an origination fee depending on the terms of the deal. All fees should always be fully disclosed on theGood Faith Estimate (GFE) and Hud-1. Pay close attention to this figure to see exactly what you’re being charged. Most upfront banks and brokers will charge 1% of the loan amount, although this can vary and you may be able to avoid this fee if you shop around.

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