Yield Spread Premium Still Irrelevant For Purposes Of Predatory Lending Law
In our Newsflash dated December 28, 2004, we reported that the Fourth District Court of Appeal had held that the "yield spread premium" a lender pays to a loan broker should not be included in the calculation of "points and fees payable by a borrower" under California's predatory lending law. After granting a rehearing, the court reaffirmed its opinion. Wolsky v. Fremont Investment & Loan, 05 C.D.O.S. 1933 (March 4, 2005).
A yield spread premium "is a bonus paid to a broker when it originates a loan at an interest rate higher than the minimum interest rate approved by the lender for a particular loan. The lender then rewards the broker by paying it a percentage of the 'yield spread' . . . ." On rehearing, the court took judicial notice of a letter from the Chief Legal Officer of the California Department of Real Estate, which apparently concluded that the YSP should be considered in calculating the "total points and fees payable by the consumer at or before closing" under section 4970(b)(1)(B) of the Financial Code.
Although "mindful that YSP's are considered by some to be a predatory lending practice, the court concluded "Section 4970 did not effect that regulation. The remedy to make that change is with the California legislature."