End of Month Fireworks: LOE's and YSP's

(LOE) Letter of Explanation:

Can a loan officer draft their own letter of explanation (typically to explain issues on a credit report or some other circumstance) on behalf of the borrower? Is this ok, ethical or worse, fraudulent. If they can draft the letter and the borrower signs it, is it acceptable at that point? If underwriting became aware of this, even though the borrower signed the form indicating that it is a true statement, would that fly? My wife and I are arguing over this, but we don’t know the answer.

YSP (Yield Spread Premium):

There may be some agents that do not understand this, so I’ll let the loan officers explain its meaning and various uses.

Recently, a borrower at a signing was given a brutally clear disclosure/explanation of the YSP as part of their loan package. It disclosed how the YSP could be used to assist the borrower in paying for closing costs, or buying down the interest rate or used as additional compensation to the loan officer for INCREASING (this “increasing” verbage was on the disclosure and not used here for effect) the interest rate over what the borrower could have received. This disclosure actually stated the interest rate on the note and the specific amount of the compensation going to the broker over and above the 1% loan origination. I’ve never seen such a clearly explained YSP disclosure. Many lenders do not have a YSP explanation disclosure as part of the loan documents.

Did the disclosure or the loan officer (LO) kill the transaction (with borrowers who had sterling credit, pushing the envelope with a 3 yr. pre-pay penalty AND the YSP)? I really would like comments because my guess is that the LO will blame the lender. In this case, the borrower was highly concerned (there is a better word for it , but concerned will do) and promptly called the LO to discuss the situation and I’m speculating that the conversation also touched on why this disclosure was not given when they made loan application or on the GFE. The borrowers promptly signed the rescission and left. Although I am somewhat aware of up-front disclosures on the lending side, perhaps someone in the business could shed light on this. Obviously, you cannot know loan fees until the lender, loan program and interest rate is chosen.

Lastly, should any escrow firm be entitled to a full escrow fee for fulfilling their job and recovering any third party fees incurred during the escrow period? Any escrow/title/attorney folks want to comment on that?