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The Center for Responsible Lending
Attn: Kathleen Day, Ginna Green, Charlene Crowell
910 17th Street NW Suite 500

Dear Kathleen, Ginna, and Charlene,

Please retract your Nov. 5, 2007 issue brief titled “Bans on Yield-Spread Premiums and Steering: Protecting Homeowners and Strengthening the Mortgage Market”. I am asking for your retraction because its definition of yield spread is false. Your request for a ban on yield spread lacks substance due its use of a false definition.

I have asked the New York Times to withdraw its April 10, 2009 editorial “Predatory Brokers” and have alerted the editors that their false definition of yield spread is probably based upon the Nov. 5, 2007 issue brief from The Center for Responsible Lending.


Let me start by defining yield spread and cost. My definitions will help you correct the false definitions which you have used.

The payment is required by law to be disclosed to the borrower. The amount of the payment is determined by the size of the loan and the interest rate. The higher the interest rate, the higher the percentage which the mortgage broker receives as compensation. In the example I have provided to The New York Times, and which I include here, the mortgage broker charges yield spread equal to 3 percent of the loan amount by raising the interest rate from 4.875% to 5.4%.

The lender pays the mortgage broker 3 percent of the loan amount based upon the spread or the difference between a loan which yields 4.875% and a loan which yields 5.4%. In this case the spread of .525% is the difference in yields between a mortgage loan of 5.4%  and a mortgage loan of 4.875% (5.4-4.875=.525). The lender pays the fee to the mortgage broker because the loan at a higher rate is worth more. Almost all mortgage-broker transactions use yield-spread so that borrowers do not have to pay the cost of originating the loan. The right way to understand this is to call the 4.875% rate the “wholesale” rate the mortgage broker is charged for the loan and 5.4% the “retail” price the mortgage broker charges the consumer for the loan.

A person who sells airplanes or computers or mortgages buys at a wholesale rate and sells at a retail rate. Uneducated persons who do not understand free markets and business or who hate free markets and business frequently voice opinions which fail to comprehend that business based upon sales always uses wholesale and retail prices.


What is obvious to any fool is that mortgage brokers disclose more information than any sellers of a product or service. Think if you can of any other good or service which you purchase and which you know the price the seller pays. I can’t think of one.

We do have one issue which undermines our disclosures in mortgage lending. The authors of the disclosure documents, various government agencies, have made it impossible to understand a mortgage loan. They have so flooded a mortgage transaction with paper work that disclosures are not very much different than the legal agreements you quickly click through when buying a service on the internet. Nobody reads them. They are too difficult to understand.

And the latest version of the Good Faith Estimate, which went into effect January 1st, 2010, is so nonsensical that nobody knows the right way to fill them out. Forget about explaining them or whether they are accurate.

I guarantee you the best job you could do for consumers is to make the paper work simple and easy to understand. It keeps getting harder and harder to understand and less and less relevant. Nobody reads it. Nobody understands it. There’s a real and serious problem in mortgage lending for you to tackle.

Have you written yet on this issue?


A borrower has only two choices for paying for his new mortgage. He can pay the expense himself or he can have the lender pay the expense. When the lender pays the expense, it is almost always done with yield spread.


Cost: There are two reasonable definitions of cost. Definition (1) which follows is a subset of the more complete tally of “cost” defined in (2). Both are accurate definitions.


These descriptions of cost and yield spread are accurate and factual. They will help you correct the errors of your Nov. 5 2007 issue brief. The rest of my letter will review the factual errors in your two-sentence definition “What is a yield-spread premium?” and in your three-sentence policy statement “Why should we ban yield-spread premiums?”.


I am making this letter available to the New York Times so that they may better understand their own errors. I have also posted on my blog on Feb. 11, 2010 the story titled “Predatory Incompetence Falsifies New York Times Editorial on Mortgage Brokers”. The posting is a request to The New York Times for a retraction and apology. If you have a comment for this posting or the “Predatory Incompetence” posting, I would be glad to print it.

The “Predatory Incompetence” posting shows the interplay between the editorial writer’s false statements regarding yield spread and the definitions he very likely depended upon from The Center for Responsible Lending. If you have not printed a correction, I would like to print your correction or your statement reconfirming the validity of your previous work.


Your document contains the following errors. I will list your statement, describe the error, and then advise on how the error may be corrected.

Statement 1 on Yield Spread: “It’s a bonus a lender pays to reward a mortgage broker for placing, or steering, a borrower into a higher-cost loan than the borrower qualifies for.”

Errors in statement 1 “What is yield-spread premium?”

Continuation of Statement 1 “What is yield spread premium?” Your second sentence of this definition says: “Many lenders pay this premium—essentially a kick-back to brokers—only when the loan has a prepayment penalty that helps trap the borrower in the higher-cost loan …”

In my search of your website, I find no documents with the term “release spread”. It naturally makes me wonder: Can The Center For Responsible Lending have no awareness of this basic issue in mortgage lending regarding release spread and yield spread? Is all of your research on the costs of loans comparing retail banks versus mortgage brokers invalid because you have ignored release-spread income? I wonder if you have ties to retail banks and if they pay your bills? Do you make your mistakes on purpose?


If your research comparing the cost of mortgage-broker loans to retail-bank loans does not include “release spread”, then it is invalid and should be withdrawn in its entirety. All of it is wrong if you have skipped release spread. Statement Two:

“Yield-spread premiums are a destructive feature of the subprime market because they give brokers an incentive to act contrary to a borrower’s best interest.”

If a broker wants to originate a predatory loan, that broker will take advantage of the borrower by charging high points and by charging high yield spread. It’s not yield spread or points which are bad. It‘s the broker who is bad.

The first priority to police this is to require simple disclosures so the borrowers know what they are getting. The disclosures are a minefield of obfuscation and complexity and are the best friend of a dishonest broker.

Educating the borrower is perhaps the critical matter. Every borrower should call two or three brokers to get a quote and compare prices. It isn’t rocket science.

Appropriate regulation would also limit total compensation based on an equation which adds up yield spread, points, and other lender fees (normally called “processing” fees or “administration” fees) and caps the total amount which can be charged. I believe those limits are already in place, but I have no experience with it in my work because the limits are set beyond what I charge for loans.


I have provided a detailed description of the falsehoods in your Nov. 5, 2007 issue brief titled “Bans on Yield-Spread Premiums and Steering: Protecting Homeowners and Strengthening the Mortgage Market”. Please issue corrections or a retraction and send them to my attention at email@example.com.

Your work in this case is recklessly false. The New York Times trusted your statements and they have told the whole world a lie based upon your fictions. A group of senators has issued a letter supporting a ban on yield spread based upon The New York Times editorial.

Now the newspaper has a special conversation in its future with those senators. Their opening line of that phone call is: “We have decided to think further and more deeply about the nature of yield spread and its properties and hope you will join us in this fascinating inquiry.”

You have been influential, but you have purchased your influence with either ignorance or purposeful lies.

Your currency has no value. Your credibility on mortgage issues is gone. Your issue brief on yield spread is nothing except errors.


Michael White

A Mortgage Broker Who Proudly Charges Lenders Yield Spread To Pay for His Clients’ Mortgages.
CEO: The New Mortgage Company, Chicago, Illinois. Blogs at Implode-O-Meter & NewObservations.net

Cc: The Public Editor of the New York Times





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