Flowing north across the Rio Grande

it is counterbalanced almost perfectly by another vast underground river flowing north to south: a flow of capital, in remittances from workers back to their families at home.

Out of sight, the money flows back south

The south-to-north river is being fiercely debated, with Congressional proposals to block or channel the human river north, and local communities like Farmers Branch, Texas are seeking to stem the vast underground tide by hitting the ocean with a baseball bat, enacting an ordinance to prohibit landlords from renting to those who cannot prove they are legal residents. 

One view of illegal immigration

Another view

Even as this debate is playing out, the other river is being actively primed by both US and Mexican capital markets, as highlighted in this Economist article:

ACROSS the Mexican countryside, villages are denuded of their working men but kept alive by their labour.  

Increasingly we see communities of separated families, where geographical bachelors have migrated to the cities and the jobs, and their spouses, parents, and children stay behind.  With capital mobile, labor too can be mobile, because it can send its capital home:

The northward exodus to America numbers about 500,000 people a year.

Every two years, another million in America's fields

The money sent in the other direction in the form of remittances amounted to about $23 billion in 2006, according to the Bank of Mexico, the country's central bank, up almost sevenfold in a dozen years.

The rise in remittances is a huge enabler of illegal immigration: as it becomes easier to export the extract of working up north, the desirability increases to move north, by any means necessary.  And the capital markets, in their quest for market share, are dramatically increasing capital-transfer efficiency:

As that number has grown, so others have fallen: the fee for remitting money has dropped from an average of 9.2% in 1999 to 3% in January 2007, according to Bancomer, a Mexican bank.

When you reduce resistance in the circuitry, amperage flow increases.

Wow, feel those capital flows!

Transmitting money has become cheaper partly because the cheques have become bigger, from $290 on average eight years ago to $350 now. More importantly, over 90% of remittances are now sent by electronic wire-transfer, according to the Bank of Mexico, compared with only half in 1995.

That Mexico's economy is tied to the US's is unquestionable, as shown by this Dallas Federal Reserve study:

In 2003, Mexico received nearly $13.3 billion in workers’ remittances, an amount equivalent to about 140% of foreign direct investment and 71% of oil exports.   Continued growth in remittances is expected in 2004.  The latest data, through March 2004, show remittances almost 22% higher than the same period a year ago.

As the Dallas Fed's charts show, Mexico has the world's highest remittance-receiving volume:

Mexico’s 2002 remittances were about 15% of all remittances received by developing countries. They exceeded those received by Africa ($7.8 billion), Europe ($5.8 billion) and the Middle East ($6.1 billion). As recently as 2000, India was the top receiver with $8.3 billion, followed by Mexico with $6.5 billion.

And the US has the largest remittance-paying volume:

On the flip side, the United States is the leading source for workers’ remittances. In 2002, the United States alone provided almost $23 billion in remittances, followed by Saudi Arabia with nearly $16 billion (Chart 2). The top 10 countries accounted for 85% of 2002 remittances.

Those figures are three years old.  Since then, as the Economist noted, remittances have increased a further 70%.

As a result of their vigorous growth, workers’ remittances now occupy third place as a foreign exchange generator for Mexico.  Maquiladoras continue to be the top foreign exchange generator, at $18.4 billion in 2003, followed by oil at $15 billion.

Thus, of Mexico's top three sources of foreign exchange, two tie directly to cost advantages Mexico has versus the US economy: maquiladoras and remittances.  That's an enormous amount of economic pressure, a tide that will not be stopped by half-hearted interdiction -- the more so because of the capital markets' tireless drive for even greater efficiency:

However in rural communities in Mexico, where every peso counts, even 3% is a big bite out of a remittance cheque. That is why the Bank of Mexico and America's Federal Reserve are running a programme, called Directo a Mexico, to cut the cost further.

Back in the Cold War heights, when we were grappling against the Soviets, a great deal of Herman Kahn and other think-tank leadership went into the complexities of long-term strategic warfare. 

In the long run, even a full stomach is an economic weapon

The more Kahn and similar theorists thought about decade-long geopolitical conflict, the more everything became a strategic weapon, because everything tied into the nation's capacity to sustain effort.  In the same way, the longer you study the immigration question, the more you realize that everything to do with the US economy touches upon it one way or another -- including capital … and housing.

Do the migrants themselves have accounts to send money from? As many as 70% do, according to a recent report by the Bank of Mexico. This is largely because hundreds of American banks, eager for deposits, will gladly open accounts for people carrying only a Mexican consular identity card, rather than official United States government identification. This allows people to formalise their finances without formalising their immigration status.

As I've written elsewhere, it's absolutely critical to formalize financial status; otherwise those who are excluded from capital are condemned to poverty.  Yet this formalization -- which helps workers (legal or illegal) here in America, and their families back home -- also enhances the attractiveness of making it over the border, to the land of employment.

Bansefi has seen rapid growth, with 3.4m accounts now open, compared with 850,000 in 2001. If banking continues to spread on both sides of the border, Mexico's villages should continue to benefit from the fruit of their emigrants' hard work, without it being squeezed along the way.

Capital, my favorite businessman Auric Goldfinger explained to James Bond, is a catalyst:

"My treasure of gold is like a compost heap.  I move it here and there over the face of the earth and, wherever I choose to spread it, that corner blossoms and blooms.  I reap the harvest and move on."

Goldfinger, page 135

"That's the second lesson: when the odds aren't right, make them right."

Where does the capital from Mexicans' labor go?  Back into Mexico's development:

The World Bank reports that remittance flows are developing countries’ second largest source of external funding, after foreign direct investment.

This is really important.  We make much of wealthy-nation governments' foreign aid efforts, and yet right behind them is the grass-roots foreign-aid source: millions of expatriate workers sending their money home to their families.

Further, remittances are more stable than private capital flows, which often move with business cycles, raising incomes during booms and depressing them during downturns.

Any economic-development strategy for Mexico, therefore, must look not just at the discrete and visible flows of foreign aid and foreign direct investment, but also at remittances, which have arisen spontaneously through two market forces: capital and labor/ earnings.  Trade trumps edicts.

1931: Mexicans being deported

In Mexico, economic impact studies have focused on the southern states, such as Michoacán, Guerrero and Oaxaca, where it is believed that remittances mostly or sometimes completely cover general consumption and/or housing. One estimate indicates that 80% of the money received goes for food, clothing, health care, transportation, education and housing expenses.[4]

Because remittances are higher in Mexico than in other developing countries, they also may play a key role in the development of productive economic activity.

Thus Mexican labor here in America does not merely support families in dependency; rather, it is transforming the Mexican economy in some very impoverished southern Mexican states.

One study concludes that remittances in Mexico are responsible for about 27% of the capital invested in microenterprises throughout urban Mexico.

In America, home ownership is a driver of new business formation because people readily tap home equity to start new businesses.  The same thing happens in Mexico, with the remittances flow.

The estimate goes as high as 40% in states that have typically high migration rates to the United States, such as Zacatecas, Michoacán and Guanajuato.

Numbers 9, 15, and 19 on your map -- central Mexico

Even if US politicians has been slow to recognize the value of the remittance flow, the Mexican government has been quick to support it:

Two government-sponsored programs channel remittance flows into infrastructure development and business start-ups in Mexico. In the Dos por Uno (Two for One) program, established in 1993 by the state government of Zacatecas, the federal and state governments each match one dollar for each dollar immigrants contribute for infrastructure development projects such as paving roads.

Saving precedes borrowing, for governments and municipalities as for people.

In 1999, this program evolved to Tres por Uno (Three for One) when the local government began to participate. Through 2002, about $40 million had been invested in 788 projects in several Zacatecas municipalities.  Dos por Uno programs have spread to other Mexican states such as Guerrero, Jalisco, Guanajuato, San Luis Potosí and Michoacán.

The housing component in all this is evident.  Mexicans living and working illegally in America are interested in minimizing their housing consumption up here so they can maximize their remittances back home to Mexico.  Living as geographical bachelors, and coupled with their clandestine status, they are likely to live in overcrowded conditions, the slums inside.  In fact, because slums are a wealth-extraction machine, it is economically rational for them to arise in American neighborhoods dominated by illegal immigrants who regard their time here as transitory, simply so they can build up equity and invest it farther south:

Another government-sponsored program to channel remittances into business start-ups is Invierte en Mexico (Invest in Mexico), launched by Nacional Financiera SNC, Mexico’s largest development bank, in conjunction with the Inter-American Development Bank and organized groups of Mexican immigrants in the United States.  Invierte en Mexico offers Mexican immigrants the opportunity to invest in their communities to generate employment and foster economic activity through starting businesses such as drugstores, supermarkets, gas stations and restaurants. The program provides business advice and support in developing business plans at no charge to immigrants. The program budget is about $2.2 million and is available only in Hidalgo, Zacatecas and Jalisco.

As I wrote recently in when a town dies,

Throughout history, cities have been where wealth was created, ideas were born, businesses blossomed, and revolutions started.  Cities exist for their connections of people to people, and as we have seen in posts on local real estate taxes, they too are economic organisms, whose ability to provide services and amenities to their inhabitants depends in large part on the city's economy.  A city and its residents are symbiotes, each contributing to the other's health. 

Here in America -- and as remittances demonstrate, also in Mexico -- labor mobility is a huge economic strength.  Markets and people move much faster than government, and their movements shape and grow cities and spontaneous communities.  The north of England is still suffering economically because people cling like lichen to their native soil, yet in the Americas people readily accept a thousand-mile separation.  

Running for the future

It's why our economy grows, and our population grows, even as much of Europe economically stagnates.

America is the land of opportunity.  That's why it attracts people: far from being 'those' people, they are ambitious.  For many, especially those sending home remittances, that's why they stay, and why they accept substandard housing conditions: for the economic opportunity.

Wanting in

As the United States thinks about immigration, legal or illegal, and how to rationalize what everyone agrees is a currently untenable situation, keep your eyes fixed on jobs, housing, and infrastructure development.  The more we make Mexico rich, the more we strengthen Mexican communities and housing alternatives, the less the pressure to have illegal immigration.

As long as there is money to be made, they will keep coming

Yesterday we saw that Disney, Anaheim's biggest employer, though it had lost a 3-2 city council vote regarding a proposed high-end residential development, was suing the city to block it and had secured support of at least one useful person, Anaheim's mayor, Curt Pringle. 

We're friends with the mayor!

Mayor Pringle was apparently persuaded by the arguments of Disney's spokesman:

Mr. Doughty of Disneyland said that hotels and restaurants, which operate around the clock, are incompatible with permanent housing. “It doesn’t matter that it’s low-income housing,” he said --

The proposed development is 85% condominium, hardly low-income, and I would be astonished if the remaining 15% were not workforce housing.

-- explaining that Disney objects to any new housing in the resort area.

In other words, Disney wants more Disneyland in the area.  This is sounding more and more as if Disney simply covets the site for its own purposes.

"How dare you say we have ulterior motives!"

Indeed, the company has recently voiced its objection to another proposed project, called Parc Anaheim, at the edge of the resort area.

"We're really for affordable housing, just no property you can possibly imagine."

The SunCal site is about a mile from the Magic Kingdom and half a mile from the company’s second Anaheim theme park, Disney’s California Adventure, which opened in 2001.

But it is directly opposite an 88-acre plot on which Disney is considering building a third Anaheim theme park, which is likely to include boutique attractions.  (In Orlando, one such attraction, Disney’s Discovery Cove, costs $249 a day to enter — a price that includes a chance to swim with dolphins.)  

Mr. Doughty confirmed that the third park was a possibility, but said it would probably not be announced this year.

Evidently Disneyland's growth is landlocked, chafing at its growth:

In the 1990s, Disney actually considered expanding its Southern California theme park operations outside Anaheim. (After learning its lesson in Anaheim, where it failed to buy enough land for its future growth, the company bought more than 25,000 acres in Florida before opening Walt Disney World in 1971.)

While Disney may wish to expand, and Anaheim may wish that too, Anaheim also needs more housing:

Cynthia Ward, an architectural historian who lives in Anaheim, said that “there is essentially no place left to live in Orange County for people with extremely low-income jobs,” but that, even so, the resort area should be protected. “Yes, we need affordable housing,” she said, “but it doesn’t have to be on that site.”  The median home price in the county last year was more than $600,000.

From the 1960s until the 1980s, the area outside Disneyland “really deteriorated,” Ms. Ward said. Its rows of cheap hotels and restaurants, she said, “were tacky and disjointed.”

Instead of building elsewhere, Disney persuaded Anaheim to create the resort area, whose main streets were then turned into idyllic palm-tree-lined corridors leading to the theme parks. “Sometimes, people who live in Anaheim complain that they’re not getting the same street improvements,” Ms. Ward said. “But we understand how much money tourism brings.”

To pay for the improvements, the city levied a “bed tax” on hotels in the resort area.

Taxes are fun in bed!

Generally known as a soak-the-tourists tax, a favorite of mayors everywhere.

That tax now brings Anaheim some $80 million a year — which, when combined with sales and property taxes from the resort, represent more than a third of the city’s general fund. The bed tax revenue is expected to increase as more hotels are built, and Mayor Pringle said the city had already borrowed against that anticipated revenue.

That's a fascinating tidbit, since it gives the city a huge financial interest in seeing more hotels go up, because they've already funded improvements (read: generated current political capital) based on the economically implicit promise of doing what Disney wants.

Promise me you'll let me build more hotels and resorts

That, he said, means that a failure to build more hotels in the resort district could cloud the city’s economic future.

Pretty tawdry and short-sighted behavior in my view.

Your future has been hocked here

Disney’s plan to protect its interests has gone beyond suing the city. It has called for a referendum that would allow voters to overturn the City Council’s decision. That could come to a vote next February, Mr. Pringle said.

We thus see that Disney is mounting a multi-front campaign. 

"We got lots o' different arguments, we're gonna use 'em all."

The lawsuit is probably a dead loser, but it creates political pressure, on the three beleaguered city councilors, and potentially on the voters as well.  Finally, if you want to know the absolute tipoff that Disney knows its legal case is insubstantial, here it is:

And the company is behind a separate voter initiative that would make the resort zoning part of Anaheim’s city charter. “It would lock in permanently the boundaries of the resort area,” Mr. Doughty said.

So, Mr. Doughty, if (as you said before), "companies like Marriott and Disney and Hilton make their investment decisions on what they assume the zoning is going to be," then they wouldn't need this voter initiative, would they?

The voter initiative is being pushed by an organization called SOAR, for Save Our Anaheim Resort. Opponents of the initiative who favor the low-income housing have their own acronym: Yimby, for “Yes in Mickey’s Backyard.”

Mr. Elfend of SunCal called Disney’s tactics “very heavy-handed.”

Look, look, we're not really for affordable housing, Mr. Mouse!

I agree with Mr. Elfend.

“Historically,” he said, “they’ve had so much power in Anaheim that they think they can control the development of land they don’t even own.”

It certainly seems that way.

But Mr. Doughty said, “It’s not just about this one development — if one developer is allowed to build residential in the resort area, others will follow.”

Goodness — you mean people might actually want to live here?

If you let people move in, God knows what will happen next!

Mr. Doughty said that Disney supported the building of affordable housing in other locations.

Anywhere but where Disney wants to build.

“Anaheim and Orange County have to address the affordable housing issue, but Anaheim also has to protect the resort area,” he said. “It’s not an either/or.”

Recognizing the potential for a black eye, Disney's CEO Robert Iger, recently tried to sound like a good neighbor:

I speak for the mouse around here.

"We believe that there should be affordable housing in this area, that is it's an effort that should be a partnership between the local government and a number of businesses," Iger said. "Given all of the employees, or cast members as we call them, that we have here, we believe that giving them affordable housing in an area that's proximate to their place of work is something that we should all work to create.  But we don't believe that the property that's being talked about is property that should be developed for housing.  We just don't believe it's what's called recreation- or business-friendly, nor would it throw off as much in taxes as the businesses that could go into that place."

There it is, folks — NIMBYism and self-interest, neatly packaged.

Walt must be spinning in his grave.

And then there is Disney, which appears to be doing everything it can to keep 'those' people — who make the Magic Kingdom go — living far away from Disneyland. 

Bring your children, bring your dollars, but don't try to live near us

As reported in the New York Times:

For 52 years, the Walt Disney Company has called Disneyland, its Southern California theme park, “the happiest place on earth.”

But now Disney is angry that the city of Anaheim, where the park is based, has approved plans for 1,500 apartments on a site zoned for tourist facilities.

In February, Disney sued the city, hoping to force it to abandon the decision permitting the project. The development would have 225 subsidized units, and advocates of affordable housing are accusing Disney of turning its back on low-income residents, including many of its own employees.

"Yes, here's the passage -- tort liability."

Disney argues that it is simply trying to make Anaheim an attractive place for tourists. In the 1950s, Walt Disney, the company’s founder, bought 244 acres in Anaheim, for which he paid about $4,500 an acre.  By the time the park opened, in 1955, Disney wished it had bought more.

In fact, Disneyland’s success spawned thousands of acres of development around the park including some that the company found tacky. The disputes that arose have forced Anaheim to take sides, and it has almost always taken Disney’s.

But the relationship between Anaheim and its largest employer has become strained over the planned housing, on a 26-acre site that now holds a trailer park.

Thanks, New York Times, for perpetuating stereotypes.

I've previously documented that mobile home parks are a very low-value use of land -- because they are single-story, and therefore inefficient use of the development space -- so I endorse the idea of creating high-density, mixed-income housing (provided, of course, that the existing mobile home park residents have their rights respected and a reasonable relocation plan).  Swapping mobile homes for 1,500 apartments (sixty to the acre, meaning mid-rise and high-rise), of which 225 will be affordable, has got to be in Anaheim's long run interest -- and in the interest of its lower-income households:

Theresa Medina, an Anaheim resident, was visiting relatives at the trailer park this month. She said that one-bedroom apartments in Anaheim can cost $1,400 a month, and that many landlords won’t rent to large families.

Such inclusionary-zoning-style housing affordability also eases both Anaheim's traffic burden and its workers' total occupancy costs:

The prices and the occupancy restrictions cause many workers to commute long distances to Anaheim, she said.

Affordable housing not wanted here

Lorri Galloway, one of three on the five-member Anaheim City Council who voted in favor of the housing project, said, “Research shows that we have a need in and around the resort area for 27,000 units of affordable housing.”  

Anaheim resident for 29 years

In other words, the proposed development, dense though it will be, will add supply equal to about 6% of Anaheim's overall need, and the affordable component will be less than 1% of the demand.

By trying to block some of that housing, she said, Disney is showing “complete disregard for the workers who make the resorts so successful.”

Ms. Galloway is right.

But Rob Doughty, a spokesman for the Disneyland Resort, said the goal was simply to keep housing ['those' people NIMBYism -- Ed.] out of an area zoned for resort development in 1994.

Once the special zoning district was created, “the state and federal governments invested billions of dollars to clean it up,” Mr. Doughty said.  

Mr. Doughty's logic is backwards. 

No, I'm building up logical momentum

If the state and federal government invested billions to make the property -- including Disney's property -- more valuable, does that give the government even more moral standing to change the zoning in the public interest?

Disney and other companies then began building lavish facilities, including Disney’s 745-room Grand Californian Hotel and Spa, which opened in 2001. “And now they want to throw all that away,” he said, referring to the City Council.

Here too Mr. Doughty is tacitly appealing to prejudice, because he is suggesting that adding affordable housing and 'those people' will lower property values.  The evidence is that it does not -- fact, because the site will be enormously more valuable, it will generate substantial new real estate taxes, and therefore more local services.

Mr. Doughty added that “companies like Marriott and Disney and Hilton make their investment decisions on what they assume the zoning is going to be.”

Wrong again, Mr. Doughty. 

You know full well companies know zoning can be changed -- and frequently try to change it themselves.

Anaheim’s mayor, Curt Pringle, who voted against the housing plan, said he understood the frustration that led Disney to file a lawsuit.

Anaheim mayor Curt Pringle, resident for 36 years

Mayor Pringle likes incentives:

In August 2005, the Anaheim city council adopted an ambitious new housing strategic plan, coauthored by Mayor Pringle.  The Plan uses market incentives rather than command-and-control policies to sizably increase the affordable housing stock in the City of Anaheim over the next 4 years.

He cites increasing affordable housing development:

The city has recently completed 663 affordable rental units and has another 1,243 under way, according to statistics provided by the mayor.

That's good -- though it falls far short of what Anaheim needs.

“I certainly think they have a legal right to protect their interests,” Mayor Pringle said, adding that “no one contemplated that three members of the City Council would turn their back on that engine [Block that metaphor! -- Ed.] of economic development within the city.”

Mayor Pringle's statements also make no sense to me.  In what way is replacing an existing mobile home park with 1,500 new homes, of which 1,300 will be market-rate, bringing workers into Anaheim, going to undermine economic development?

The controversy began when the SunCal Companies, a developer based in nearby Irvine, signed a contract to buy 26 acres and announced plans to build 1,300 condominiums and 225 rental units on the site.

Frank Elfend, a project manager for SunCal, said the idea for affordable housing came about in consultation with the city. “Whenever you do a big project, you talk to the community about what their needs are,” he said. “In Anaheim, the priority was affordable housing.”

Evidently.

SunCal’s approach won the support of several members of the City Council. In February, the Council approved the project, leading Disney to file its first lawsuit ever against the city.

I will be fascinated to hear on what legal basis Disney believes it can prevent a city from exercising a normal prerogative of local government.

In late April, at the end of a contentious six-hour public hearing, the City Council voted to reaffirm its support for the housing project, ensuring that the litigation would continue. The vote was 3 to 2.

Another reason for the lawsuit suggests itself -- to raise the political stakes, in hopes of persuading one of the three stalwart councilors to change his or her mind.

Are you ready for some litigation?

Mayor Pringle, who opposed the new housing, said that Anaheim was building at least as much affordable housing as any other city in Orange County —

Mayor Pringle's comments suggest he sees affordable housing as a noxious burden to be discharged rather than an asset to his community — a very curious perspective for an elected official.

It all makes sense from my point of view

—and that it would build more when it found appropriate sites.

A 26-acre mobile home park, that can increase its density sixty-fold, isn't appropriate?

"We like you, but not living here."

[Continued tomorrow in Part 2.]

Yesterday we discovered that, in being to thine own financial interests true, mortgage brokers claim they work neither for consumers nor for lenders.

"Neither a borrower nor a lender work for.

And it shall follow as the night the day.

Thou canst not be sued by any man."

Imposing a fiduciary duty would increase the risk of litigation over whether brokers are to blame for loans that go bad, says Joseph Falk, legislative chairman of the association. He adds that the group favors clear disclosures to consumers and no hiding of important details.

Mr. Falk is right — litigation risk would rise.  Yet litigation is also the means of pursuing a legitimate grievance, so its possible rise is not ipso facto proof that adding fiduciary duty would be unwise.

For now, most states lack any legal provision spelling out whether brokers have a fiduciary duty. Many brokers sell a relatively small range of products without being obliged to make sure the consumer gets the best terms known to the broker on a suitable loan.

Yet that's true of every salesman!  There's a reason we all know the Latin for caveat emptor.

They receive fees — often totaling between about 1% and 3% of the loan, but occasionally even more — for finding customers and guiding them through the loan process.  

Even though the fees are expressed as percentages, it's helpful to think of them in total dollars for the unit service.  Place a $150,000 loan, and the broker may make $1,500 to $4,500.  By itself that's not a huge amount — provided the borrower (who's paying it in economic reality) is aware of the charge.  Sometimes, unfortunately, the buyer is unaware:

These fees come either from borrowers or through payments from lenders known as yield-spread premiums, or YSP, or through a combination of the two.

Fee?  What fee?

For the moment this sounds simply like a commission embedded in the calculation of loan total proceeds, but it's subtler than that:

… when the borrower is paying a higher interest rate than the best he or she could qualify for, which makes the loan more profitable for the lender.  

If the broker persuades the customer to take a loan whose rate, for one reason or another, is higher than that same lender would offer, one might think that either the lender or the broker would let the borrower know, and adjust the rate downward. 

Your broker told us your interest rate should be lower, so here's a check

Not so:

Lenders pay YSP to the broker …

Got that?  The overcharge, if I may so call it, is pocketed by the intermediary.

The higher the rate, the higher the payment to the broker.  (Some lenders put a ceiling on YSP.)  Lenders may also pay brokers a bonus for loans with prepayment penalties, which make it expensive for borrowers to refinance within the first few years.

This sounds very much like a commission for overcharging borrowers.

YSP amounts to "a payment for giving the homeowner a worse deal," says Prentiss Cox, an associate professor of law at the University of Minnesota who previously investigated lenders as an official in the state attorney general's office.

It certainly is!

In some cases, paying a slightly higher rate and allowing the broker to receive YSP can make sense for cash-strapped borrowers who don't want to pay an immediate fee to the broker. With YSP, the cost of the broker's service is spread over the life of the loan in the form of higher interest.

If they know they're being charged it!

Yield spread premium?  I can't see any yield spread premium!

But Howell Jackson, a professor at Harvard Law School who has analyzed thousands of home loans, says YSP is confusing for consumers and can allow brokers to "extract excessive payments" from unwary borrowers.

For what it's worth, I've never heard of YSP in a residential loan context, and I'm mortified that it's considered standard practice.  There should be a duty to disclose and adjust before closing.

In Washington, legislation was introduced this month by Sens. Charles Schumer (D., N.Y.), Sherrod Brown (D., Ohio) and Bob Casey (D., Pa.) that would impose on brokers a fiduciary duty to put their customers' interests first. The proposed legislation is considered a long shot for this year.

In Minnesota, legislation enacted last month specifies that brokers have "an agency relationship" with borrowers, meaning they must act in a borrower's best interest and can't put the broker's interests first.