Not Your Father’s APR

Jul 21, 2010

APR calculations have lost their uniformity.  With the introduction of the new Good Faith Estimate this year the industry has developed and adopted different ways of calculating APR.  The new GFE was supposed to make shopping and comparing loan programs easier.  In many ways it has simplified thing, most notably by requiring all lender fees to be summed up in the adjusted origination charge.  For mortgage originators who do no intend to service the loan the yield spread premium (YSP), costs paid by the lender for the borrower, is sometimes not included in the APR calculation.  When this is the case, the APR is higher for the non-serving lender (broker) versus that of a servicing lender, even though the actual cost to the borrower are the same, Since over disclosure has been accepted by the industry, our processing and closing staff routinely re-disclose TIL statements, as the method for calculating the APR seems to vary by date / document preparer.  We want to make sure there are no hick-ups on your loan that will hold-up closing and sent you a TIL with an APR calculated not including the negative fee being paid for you (YSP).


The new GFE regulations were created with intentions to help the consumer, but in practice have actually made things more confusing.


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