Abuses the Fed hopes to correct with the new mortgage rules


You may be wondering exactly what the Fed hopes to achieve with its rules change. The Fed spelled out its goals yesterday:

  • "Prohibit lenders from paying mortgage brokers "yield spread premiums" that exceed the amount the consumer had agreed in advance the broker would receive. A yield spread premium is the fee paid by a lender to a broker for higher-rate loans." My take: Prior to this new rule many brokers did not disclose how much money they were making by steering consumers to subprime loans. Consumers who could have qualified for prime loans were encouraged to take subprime mortgages so brokers could make more money.