Senate says yes to disclosure of broker profits

OLYMPIA – Buying a house is expensive. Most homebuyers pay thousands of dollars in brokerage fees without even knowing just how much is pure profit for the mortgage broker.

Brokers can recommend the “best” mortgage product and receive what amounts to a kick-back from the lender for selling the homeowner a loan with a higher interest rate than they would normally accept, were they aware of the true cost. The difference between the two interest rates is called the yield spread premium (YSP).

YSPs put the broker in direct conflict with the interest of the borrower, as the brokers have a strong incentive to sell excessively expensive loans. YSPs also undercut the benefits of homeownership by stripping equity from the borrower.

Today, legislation requiring brokers to disclose the estimated YSP as an exact dollar amount and not a range was approved in the Senate on a 31 to 17 vote.

Senate Bill 6452, sponsored by Sen. Rodney Tom, D-Bellevue, also requires brokers to provide schedules comparing the total costs and payments of their loan with the YSP and without. Also disclosed is the cost to the borrower when the broker receives an YSP – including a higher annual percentage rate or a pre-payment penalty.

“This legislation does not reduce or eliminate yield spread premiums, it simply requires brokers to disclose the amount,” said Tom. “Borrowers can then make sound financial decisions because they know their options and how much their loan actually costs.”

In addition to requiring disclosure of YSPs, SB 6452 further requires that if the YSP turns out to be greater than the rate the homebuyer was told at the time they received their good-faith loan estimate, the difference should go back to the borrower, not the broker.

SB 6452 now moves to the House for further consideration.

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