New Orleans After years of pleading from tens of groups, the lackadaisical
Federal Reserve with its laissez faire view of its regulatory responsibility, finally outlawed the
infamous “yield spread premium” enjoyed for years by real estate brokers and their co-
conspirator lenders, both of whom continue to have escaped any accountability for the real estate
mess by and large, despite the ill gotten gains from such underhanded dealings.
Here’s how it worked in simplest terms: if a real estate broker convinced a borrower to
loan with higher than market interest, then the lender (the bank or bank like operation) gave the
broker a bribe for having conned the borrower into the loan. The bribe, tip, or whatever one
might have wanted to call the YSP (as the yield spread premium was called in the industry)
meant in our experience with ACORN that huge numbers of homeowners were lured into sub-
prime loans with higher interest rates despite being fully qualified for traditional, fixed 30-year
This scam was amazingly easy for the brokers and the banks to pull off. A working or
lower income family trying to realize the dream of home ownership would talk to a broker about
getting a loan, the broker would come back and say essentially, “hey good news, so-and-so bank
is willing to loan you money, unfortunately to get the loan you will have to pay a couple of points
above the quoted rate” or words to this effect. Hopeful borrowers were hardly in a position to go
crawling from bank to bank to see if they could do better, which is why they were in the broker’s
office from jump street.
The cycle of trust and deceit flowed easily from the real estate agent who was trying to
sell the house, but couldn’t sell it without being able to match the wannabe buyer to a loan, who
easily seduced the hopeful buyer arguing that s/he (the agent) worked closely with x broker to get
loans, and they had had good success in the past. Bingo, the broker comes back with a
sweetheart deal from the lender. It was only later, if ever, that the homeowner would ever realize
they were flimflammed by the bribe paid by the lender to the broker.
When I was at ACORN, we confronted bank after bank with these practices because they
were so transparently corrupt. The Federal Reserve resisted any regulation. Some banks in
embarrassment at the blatant venality involved agreed to voluntarily halt the practice. Others,
especially mortgage lenders outside of the jurisdiction of the Federal Reserve, CRA, or much
else, just kept the music going while they fleeced the borrower.
I guess this is just another Wall Street and Washington crime with hundreds of thousands
of victims that will never be heard by a grand jury and is simply seen as “business as usual.”