YSP is short for Yield Spread Premium and is used by broker to make a profit or can be used to limit the borrowers closing costs on a loan. YSP is usually calculated as a percentage of the loan amount.Sometimes the broker's YSP can be used to credit their customers at the closing. If you do not have enough money to come to closing with, your broker, in some instances, can credit the money to you.
YSP means your broker is getting compensation outside of the origination they are charging you.
The mortgage business, like other businesses, works on a margin. That is, goods are purchased at a cost and sold for a price that is higher than the cost. In the mortgage business, brokers essentially are paid a margin, called YSP, by the lender. Often, this is the only compensation the broker makes. A broker may elect to "sell" you a mortgage with no margin or profit which provides a lower interest rate. In that case, the broker will charge you origination points in order to earn a profit on the transaction.
YSP may also increase when a prepayment penalty is added to the loan. It can sometimes be a strategic benefit to ask your loan professional if this is the case. You may want to add a prepayment penalty to your loan and ask that the up front fees be reduced.
When your broker makes a yield spread premium on your loan he/she is normally changing you a slightly higher interest rate in return for compensation from the lender. Some lenders offer to provide mortgage brokers yield spread premium incentives for providing them with a complete and perfect loan package all at once and some will provide yield spread premiums for using a certain method of underwriting, such as automated instead of manual.
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