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One of the things that people take for granted when they are going through the process of getting a home loan is that they believe that what the loan officer is telling them is actually true. When you think about it, it makes perfect sense, we’re predisposed to believe what people in a position of authority tell us. This works against you when dealing with a loan officer because many of them will lie to you about your own personal financial information that you may not know yourself. One way they do this is by lying to you about your credit score in order to sell you a higher interest rate.
When they sell you a higher interest rate the bank pays them more money. Yield Spread Premium (YSP) is what banks pay brokers for selling an interest rate higher than the floor (or par) interest rate.
Here is an example: You talk to Joe Loan Officer and he says “After reviewing your credit it looks like you have a 620 FICO score. With that score you qualify for a rate of 6.75%” You go along with it and “take” the 6.75%. In fact, your credit score is really a 680. With a 680 you’d qualify for the same loan program at a rate of 6.25%. By selling the 6.75% the loan officer will get paid an extra point (1% of the loan amount) from the bank in the form of YSP.
This is a shady way that loan officers trick you in to higher interest rates in order to pad their paychecks.
To protect you against this loan officers are supposed to send out a disclosure called the Credit Score Information Disclosure; however this disclosure is easily manipulated and often-times not sent out to begin with. The best way to protect yourself is to acquire a copy of your credit report ahead of time through a company like www.myfico.com. This way you’ll know your credit score before you begin the process.
It is an easy way to protect yourself from getting a higher rate from some loan officer who tries to use your ignorance about your personal financial situation against you.
