Can someone in the business translate what this means? (insurance, loan, interest rate)

[PPGNY]

Thanks in advance!

Explanation regarding Flat YSP
People are looking for higher YSP in an effort to cover costs of refis and we've been working with our Capital Markets team to see how to make that happen. The problem is that the secondary markets feel that rates are going to stay where they are now or go even lower so there isn't much market out there for trading higher note rates with higher YSP. As a result of limited secondary markets, our Capital Markets team is de-valuing the note rates that would otherwise show higher YSP in an effort to continue to drive low rates.

[chet everett]

whooo boy -- here is the wikipedia article, ]Error

As you can tell from the article, there is a lot of controversy over the effect of "bounties" had on brokers, lender quality, and even the current problems with MBSs.

I suspect the info you copied is from a large 'money center bank' -- perhaps in response to a question about the current situation with regard to falling interest rate.

For people that are shopping for a refi it is important to consider the INTEREST RATE of their new loan, the SIZE of the loan, the TOTAL out of pocket costs, their LIKELY time before moving -- together these things will enable a homeowner to determine the "pay back" period on refinancing.

The details of YSPs really should not be a concern, as the compensation of the loan originator can be done in variety of ways, none of which should matter to the borrower.

That said, for the purposes of ANALYSIS clues about the incentives being offered MAY help borrowers decide in lenders believe rates will be stable or declining...

[rcarrillo]

Originally Posted by PPGNY

Thanks in advance!

Explanation regarding Flat YSP
People are looking for higher YSP in an effort to cover costs of refis and we've been working with our Capital Markets team to see how to make that happen. The problem is that the secondary markets feel that rates are going to stay where they are now or go even lower so there isn't much market out there for trading higher note rates with higher YSP. As a result of limited secondary markets, our Capital Markets team is de-valuing the note rates that would otherwise show higher YSP in an effort to continue to drive low rates.

What it means is that the secondary market is not paying higher YSP/SRP for higher rates. So whether a borrower takes a 5.5% rate or a 6% rate, the YSP/SRP will be flat.

This is great in that borrowers are getting lower interest rates. It is bad however for no closing cost loans. Because they can not make higher YSP/SRP, they can not use this to cover a borrowers closing costs.

That isnt to say no closing cost loans are not available, they are just a little harder to find from some lenders.

[Wayne S Sullivan]

The link didn't go through but I get it.

[Pfhtex]

Originally Posted by PPGNY

Thanks in advance!

Explanation regarding Flat YSP
People are looking for higher YSP in an effort to cover costs of refis and we've been working with our Capital Markets team to see how to make that happen. The problem is that the secondary markets feel that rates are going to stay where they are now or go even lower so there isn't much market out there for trading higher note rates with higher YSP. As a result of limited secondary markets, our Capital Markets team is de-valuing the note rates that would otherwise show higher YSP in an effort to continue to drive low rates.

YSP = Yield Spread = additional $ revenue within the interest rate that would allow for a lender to cover closing costs/taxes/insurance cost. Rates are usually set on a wide spread, wherein a borrower could pay $$ for a lower-than-market, (market = no cost or additional revenue, also called "par"), obtain a "par" rate, or request an above-par rate that would facilitate the lender paying fees.

In the recent rising-rate environment, banks have been hesitant to issue above-par rates, as they would have to have been in the 5%s - a big step upward. Banks were reluctant for a myriad of reasons, from seeming to be engaging in predatory or over-charging clients, to bad press ("I got 5.25% from XYZ Bank...), to the very marketability of the loans in the Secondary Market.

In a case like this, it might be more efficient for buyers to work with sellers to set pricing such that the seller can "pay" costs and fees - - meaning it's rolled into the price, and therefore the loan and down payment.