Yield Spread Premium Irrelevant For Purposes of Predatory Lending Law
Question: Should the "yield spread premium" a lender pays to a loan broker be included in the calculation of "points and fees payable by a borrower" under California's predatory lending law?
Answer: No, at least according to the Fourth District Court of Appeal in Wolski v. Fremont Investment & Loan, 04 C.D.O.S. 11166 (Dec. 20, 2004).
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' . . . ." In this case, the borrower argued 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.
The court of appeal disagreed, finding that to the extent that the YSP is paid by the borrower, it is paid over the life of the loan (in the form of a higher interest rate), rather than "at or before closing" under the statute. The court found nothing in the language of the statute or its legislative history indicating that even though the YSP is not "paid" at or before closing, it is "payable" at that time.
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