The Effect of Mortgage Broker

Compensation Disclosures on

Consumers and Competition:

A Controlled Experiment

 

Federal Trade Commission

Bureau of Economics Staff Report

 James M. Lacko 

 Janis K. Pappalardo 

February 2004 

The Effect of Mortgage Broker Compensation

Disclosures on Consumers and Competition: 

A Controlled Experiment

Federal Trade Commission

Bureau of Economics Staff Report

James M. Lacko

Janis K. Pappalardo

 

February 2004
ii

FEDERAL TRADE COMMISSION

TIMOTHY J. MURIS Chairman

MOZELLE W. THOMPSON Commissioner

ORSON SWINDLE Commissioner

THOMAS B. LEARY Commissioner

PAMELA JONES HARBOUR Commissioner

BUREAU OF ECONOMICS

LUKE M. FROEB Director

MARY T. COLEMAN Deputy Director for Antitrust

PAUL A. PAUTLER Deputy Director for Consumer Protection

MARK W. FRANKENA Associate Director for Competition Analysis

PAULINE M. IPPOLITO Associate Director for Special Projects

DENIS A. BREEN Assistant Director for Economic Policy

Analysis

ROBERT D. BROGAN Assistant Director for Antitrust

GERARD R. BUTTERS Assistant Director for Consumer Protection

LOUIS SILVIA, JR. Assistant Director for Antitrust 

MICHAEL G. VITA Assistant Director for Antitrust

The authors are economists in the Bureau of Economics, Federal Trade

Commission. The views expressed in this report are those of the authors and do

not necessarily represent the views of the Federal Trade Commission or any

individual Commissioner.
iii

ACKNOWLEDGMENTS

The authors greatly thank Kata Mihaly who contributed tremendously to the data

management, computer programming, and statistical analysis for this study. The

authors also thank everyone who provided helpful suggestions on the study

design, valuable assistance in the data analysis, or thoughtful comments on the

draft report, including Lauren Wittenberg, William Reid, Jack Kloc, Manoj

Hastak, Steven Schwager, Carole Reynolds, Allison Brown, Howard Beales,

Natalia Sutin, David Newhouse, Gerard Butters, and Pauline Ippolito. We also

thank Stefano Sciolli, Carolyn Samuels, and Marie Tansioco for their help in the

production of the report.

v

TABLE OF CONTENTS

ACKNOWLEDGMENTS ...................................................... iii

TABLE OF CONTENTS ........................................................ v

TABLES ................................................................... vii

FIGURES ................................................................... ix

EXECUTIVE SUMMARY ................................................... ES-1

1 INTRODUCTION ........................................................... 1

1.1 HUD’s RESPA Reform Proposal ........................................ 1

1.2 Yield Spread Premiums ............................................... 2

1.3 Proposed Broker Compensation Disclosure ................................ 4

1.4 Concerns about the Proposed Compensation Disclosure ...................... 6

1.5 Example of the Asymmetric Disclosure and Possible Consumer Confusion ....... 8

1.6 Research Objectives ................................................. 10

2 METHODOLOGY .......................................................... 11

2.1 Experimental Setting and Test Questions ................................. 11

2.2 Disclosure Groups ................................................... 13

2.3 Test Disclosure Forms ............................................... 14

2.4 Loan Cost Figures ................................................... 16

2.5 Sample ............................................................ 18

3 RESULTS ................................................................ 21

3.1 Sample Characteristics ............................................... 21

3.2 Cost Comparison Tests ............................................... 24

3.3 Loan Choice Tests ................................................... 28

3.4 Certainty of the Cost Comparison ....................................... 31

3.5 Reasons for the Cost Comparison and Loan Choice Responses ................ 32

3.6 Understanding of the YSP Disclosure ................................... 33

4 ANALYSIS ............................................................... 49

4.1 Impact of YSP Disclosures on Consumers ................................ 49

4.2 Impact of YSP Disclosures on Competition ............................... 49

4.3 Projected Impact of YSP Disclosures on the Mortgage Market ................ 50

4.4 Source of the Consumer Confusion ..................................... 52
vi

4.5 Alternative Policy ................................................... 53

5 CONCLUSIONS ........................................................... 57

REFERENCES .............................................................. 59

APPENDIX A – Original HUD Proposal GFE Form ............................... A-1

APPENDIX B – Screening Questionnaire ......................................... B-1

APPENDIX C – Main Questionnaire ............................................ C-1

APPENDIX D – Loan Cost Disclosure Forms .................................... D-1

APPENDIX E – Verbatim Responses to the Question Asking the Meaning of the YSP 

 Disclosure .................................................... E-1
vii

TABLES

Table 2.1 Disclosure Groups ................................................ 14

Table 2.2 Loan Cost Figures ................................................ 17

Table 3.1 Demographic Characteristics ........................................ 36

Table 3.2 Prior Mortgage Experience ......................................... 39

Table 3.3 Cost Comparison Tests ............................................ 43

Table 3.4 Loan Choice Tests ................................................ 44

Table 3.5 Certainty of Cost Comparison ....................................... 45

Table 3.6 Understanding of YSP Disclosure .................................... 46

Table 3.7 Number of Cost Comparison Questions Answered Correctly, by Understanding 

of the YSP Disclosure ............................................. 47

ix

FIGURES

Figure ES.1 Loan choice when the broker loan is less expensive .................... ES-4

Figure ES.2 Loan choice when both loans cost the same .......................... ES-6

Figure 1.1 Origination charge disclosures in the original proposal ..................... 5

Figure 1.2 Proposed origination charge disclosures for a hypothetical loan offered by a 

 broker .......................................................... 9

Figure 1.3 Proposed origination charge disclosures for the same loan offered by a direct 

 lender ........................................................... 9

Figure 1.4 Proposed origination charge disclosures for a different hypothetical loan 

offered by a broker ................................................ 10

Figure 3.1 Number of cost comparison questions answered correctly, by understanding 

 of the YSP disclosure .............................................. 48

EXECUTIVE SUMMARY

This study of over 500 recent mortgage customers in an experimental setting finds that

the mortgage broker compensation disclosure proposed by the Department of Housing and Urban

Development (HUD) is likely to confuse consumers, cause a significant proportion to choose

loans that are more expensive than the available alternatives, and create a substantial consumer

bias against broker loans, even when the broker loans cost the same or less than direct lender

loans. Similar adverse effects were found for two alternative versions of the disclosure.

If consumers notice and read the compensation disclosure, the resulting consumer

confusion and mistaken loan choices will lead a significant proportion of borrowers to pay more

for their loans than they would otherwise. The bias against mortgage brokers will put brokers at

a competitive disadvantage relative to direct lenders and possibly lead to less competition and

higher costs for all mortgage customers. 

Other components of HUD’s RESPA reform proposal are far more beneficial. These

policies focus on clearer disclosure of mortgage costs, a clarification of the role of mortgage

originators, and the encouragement and facilitation of borrower comparison shopping across

originators. Implementation of these policies, along with appropriate refinements to ensure that

consumers easily understand the disclosures, would provide benefits to consumers without the

adverse effects that are likely to arise from the compensation disclosure.

Background

HUD proposed broker compensation disclosures as part of its July 2002 RESPA reform

proposal (HUD 2002a, 49134). Mortgage brokers would be required to disclose, in the Good

Faith Estimate (GFE) provided to borrowers, any compensation received from the lender in

connection with the origination of the loan. A major part of the compensation is any yield spread

premium (YSP) paid by the lender for a loan originated at an above-par interest rate. The YSP

reflects the additional value to the lender of a loan originated at the higher interest rate. The

proposed disclosure was motivated by a concern that brokers were placing borrowers in abovepar loans without their knowledge, and keeping the YSPs rather than passing them through to

consumers in the form of reduced settlement costs. Direct lenders would not be required to make

the same disclosure, even though they may be charging the same interest rate and settlement

costs and earning the same compensation as a broker. 

FTC staff submitted a public comment that generally supported the RESPA reform

proposal, including efforts to make the GFE more understandable and easier to use, increase the

certainty of settlement cost estimates, and allow the packaging of settlement services (FTC

2002). FTC staff raised concerns, however, that the compensation disclosure could confuse

borrowers, draw attention toward broker compensation rather than the cost of the loan, and lead

to worse rather than better mortgage choices. FTC staff also noted that the asymmetry of the
Mortgage Broker Compensation Disclosures

ES-2

disclosure policy—which would require the disclosure for brokers but not direct lenders—could

put brokers at a disadvantage, harm competition, and result in higher mortgage costs for all

borrowers.

Methodology

The staff of the FTC’s Bureau of Economics conducted a study to assess the effect of

compensation disclosures on consumer understanding of loan costs and consumer choice of

loans. The study examined the effect of the disclosures within a controlled experiment. 

Approximately 500 recent mortgage customers were shown cost information about two

hypothetical mortgage loans and asked a series of questions.

Respondents were randomly assigned to one of five “disclosure groups.” Each group

consisted of either 103 or 104 respondents. A YSP disclosure was included in the cost

information shown to three of the groups (YSP disclosure groups) but excluded from the

information shown to the two other groups (control groups). Comparison of the results in the

YSP disclosure groups and the control groups provides an estimate of the effect of the disclosure. 

Three versions of the YSP disclosure were tested: one based on the disclosure published

by HUD as part of its RESPA reform proposal in July 2002 (the “original HUD proposal”), one

prepared after discussions with HUD staff in January 2003 concerning YSP disclosures (the

“revised prototype”), and one that used the revised prototype format but with alternative YSP

disclosure language drafted by FTC staff (“FTC YSP language”). The same control group was

used for the latter two disclosures because the test forms for the two groups were identical with

the exception of the differences in the YSP disclosure language.

The test disclosure form used for the original HUD proposal version was based on the

form in the HUD proposal but was not a complete replica. The test form replicated the YSP,

origination cost, and total settlement cost disclosures, as well as the overall style and format of

the HUD form, but abstracted from some of the unrelated detail and settlement cost itemization. 

Similarly, the test forms for the revised prototype and FTC versions abstracted from some of the

detail that would be included in a full GFE form. 

The use of abstracted forms increased the likelihood that respondents would see and read

the YSP disclosure. If more detailed, full GFEs were used, some respondents may not have read

all of the information in the form, including the YSP disclosure. This would have made it more

difficult to identify the effect of the disclosure. Thus, the study results should be interpreted as

an estimate of the effect of YSP disclosures on consumers who notice and read the disclosure.

Two questions were at the core of the test. In one, respondents were asked to identify

which of the two loans would cost them less and, in the other, respondents were asked which
Executive Summary

ES-3

loan they would choose if they were shopping for a mortgage. The questions were asked twice,

each with a different loan cost scenario.

In presenting the cost information, one of the loans was considered to be a “broker” loan

and the other a “direct lender” loan, although the loans were not identified as such to

respondents. For disclosure groups in which the cost information included a YSP disclosure, a

YSP was disclosed for the broker loan but not the direct lender loan, following the asymmetric

disclosure policy in HUD’s proposed rule. The tests were conducted twice with each

respondent—once with the broker loan less expensive than the lender loan and once with both

loans costing the same. The order of the two tests was rotated across respondents, as was the

order of the loans in each test, to counterbalance any order effects.

Results

The compensation disclosures had a significant adverse impact on the respondents’

perception of loan costs and on respondents’ choice of loans. The disclosures caused a

significant proportion of respondents to choose more expensive loans by mistake and caused a

substantial bias against broker loans even when the broker loans cost the same or less than direct

lender loans.

Tests with the broker loan less expensive than the direct lender loan

! Cost comparison. All three versions of the compensation disclosure caused a

statistically significant decrease in the proportion of respondents correctly

identifying the less expensive loan when one loan cost less than the other.

" Approximately 90 percent of the respondents in the two control groups

correctly identified the less expensive loan.

" In contrast, only 71 percent (original HUD proposal), 72 percent (revised

prototype), and 63 percent (FTC language version) of the respondents in

the three YSP disclosure groups correctly identified the less expensive

loan. This represented decreases of 19 to 28 percentage points compared

to the corresponding control groups, and an average decrease of 21.6

percentage points across the three groups. The differences between the

three YSP disclosure groups were not statistically significant. 

! Loan choice. All three versions of the compensation disclosure also caused a

statistically significant decrease in the proportion of respondents choosing the less

expensive loan when asked which loan they would choose if they were shopping

for a mortgage. These results are illustrated in Figure ES.1. 
Mortgage Broker Compensation Disclosures

ES-4

 Figure ES.1

" 85 and 94 percent of the respondents in the two control groups chose the 

loan that was less expensive. Zero and 3 percent of the respondents

choose the loan that was more expensive. The difference between the

original HUD proposal and revised prototype control groups in the

percentage of respondents choosing the less expensive loan (94 versus 85

percent, respectively) was statistically significant.

" In contrast, only 65 percent (original HUD proposal), 70 percent (revised

prototype), and 60 percent (FTC language version) of the respondents in

the three YSP disclosure groups chose the loan that was less expensive. 

This represented decreases of 16 to 29 percentage points compared to the

corresponding control groups, and an average decrease of 23.5 percentage

points across the three groups. The differences between the three YSP

disclosure groups were not statistically significant. Sixteen to 27 percent
Executive Summary

ES-5

of the respondents in the three YSP disclosure groups chose the loan that

was more expensive. This represented increases of 13 to 25 percentage

points compared to the control groups. The difference between the revised

prototype and FTC language versions (16 versus 27 percent, respectively)

was statistically significant.

Tests with both loans costing the same

! Cost comparison. All three versions of the compensation disclosure caused a

statistically significant decrease in the proportion of respondents correctly

recognizing that both loans cost the same when they were shown two loans with

identical costs. The YSP disclosures led to a substantial bias against the “broker”

loan that disclosed a YSP even though the loan cost the same as a “direct lender”

loan that did not disclose a YSP. 

" 95 and 99 percent of the respondents in the two control groups correctly

recognized that both loans cost the same. The difference between the two

control groups was not statistically significant. 

" In contrast, only 49 percent (original HUD proposal), 53 percent (revised

prototype), and 57 percent (FTC language version) of the respondents in

the three YSP disclosure groups recognized that both loans cost the same. 

This represented decreases of 38 to 51 percentage points compared to the

corresponding control groups, and an average decrease of 43.5 percentage

points across the three groups. The differences between the three YSP

disclosure groups were not statistically significant. 

" 41 to 50 percent of the respondents in the three YSP disclosure groups

mistakenly believed that one loan was less expensive than the other. 

Approximately 75 to 90 percent of these respondents believed that the

direct lender loan (that did not disclose a YSP) was less expensive than the

broker loan (that did disclose a YSP). The degree of bias was significantly

lower, although still substantial, in the revised prototype than in the

original HUD proposal.

! Loan choice. All three versions of the compensation disclosure also caused a

substantial and statistically significant bias against the broker loan when

respondents were shown two loans with identical costs and asked which loan they

would choose if they were shopping for a mortgage. These results are illustrated

in Figure ES.2.
Mortgage Broker Compensation Disclosures

ES-6

 Figure ES.2

" 78 and 83 percent of the respondents in the two control groups did not

choose a specific loan but said they would choose "either loan, both cost

the same." Respondents who chose one of the two loans were split fairly

evenly between the two. In one control group, 1 percent chose the broker

loan and 3 percent the direct lender loan; in the other control group, 7

percent chose the broker loan and 7 percent the lender loan. The

difference in the distribution of responses between the two control groups

was not statistically significant. 

" In contrast, only 25 to 30 percent of the respondents in the three YSP

disclosure groups said they would choose “either loan.” Approximately 60

percent of the respondents in each group chose one of the two loans, and

approximately 75 to 90 percent of these respondents chose the direct

lender loan. The difference between the percentage of respondents
Executive Summary

ES-7

choosing direct lender and broker loans was highest in the original

proposal group (52 percentage points) and lowest, although still

substantial, in the revised prototype (29 percentage points). This

difference was statistically significant.

Conclusions

The findings of this study indicate that broker compensation disclosures are likely to

harm rather than help consumers and competition in the mortgage market.

! The disclosures are likely to lead a significant proportion of borrowers to choose

more expensive loans by mistake.

! The disclosures are likely to cause a substantial bias against broker loans that may

reduce competition and increase the cost of all mortgages. 

! All three versions of the compensation disclosure tested in the study resulted in

significant consumer confusion about loan costs and a substantial bias against

broker loans. This included versions that moved the disclosure to a second page

of the cost information.

The mistaken loan choices induced by the compensation disclosures could impose

significant costs on consumers, both individually and as a whole. If the disclosure requirement

has an impact similar to the magnitude found in one of the hypothetical loan cost scenarios

examined in the study, the disclosures would lead mortgage customers to incur additional costs

of hundreds of millions of dollars per year. Because we did not test actual loan scenarios and

because more consumers in our controlled experiment are likely to have noticed and read the

disclosure than would occur in the actual market, this figure cannot be viewed as an estimate of

the actual costs that the disclosure will impose. Nevertheless, it illustrates that the costs could be

quite high. Whatever the size of the costs, the contemplated disclosure does not appear to be

beneficial to consumers. 

The findings also indicate that the asymmetry of the disclosure policy—which would

require the disclosure for brokers but not direct lenders—creates a substantial consumer bias

against broker loans, even when the loans cost the same as a competing direct lender loan. This

bias is likely to disadvantage brokers relative to direct lenders and possibly lead to less

competition and higher costs for all mortgage borrowers. 

A more beneficial policy would focus on clear disclosure of mortgage costs, a

clarification of the role of mortgage originators, and the encouragement and facilitation of

borrower comparison shopping across originators. These policies are included in other
Mortgage Broker Compensation Disclosures

ES-8

components of HUD’s RESPA reform proposal. Implementation of these policies, along with

appropriate refinements to ensure that the disclosures are easily understood by consumers, would

provide benefits to consumers without the adverse effects that are likely to arise from the

compensation disclosure.

The study findings also illustrate the importance of consumer research in the development

of information policy for consumer markets. Seemingly useful disclosures designed with good

intent can produce unintended consequences that are counterproductive to the desired policy

goals. Consumer research can help policymakers assess the effect that proposed disclosures are

likely to have on consumers and competition.

HUD’s RESPA reform proposal pursues the important goals of increasing competition

and lowering costs to consumers in the mortgage loan market. Many of the components of the

proposal promote these ends and are likely to benefit consumers, particularly the removal of

restraints on packaging and improving the understandability of the GFE. This study finds,

however, that broker compensation disclosures are likely to act against these goals and result in

more confusion, less competition, and higher costs for consumers.
1

 Complete references are presented in the Reference section that follows the last chapter

of the report.

1

INTRODUCTION

As part of its efforts to reform the regulations that implement the Real Estate Settlement

Procedures Act (RESPA), the Department of Housing and Urban Development (HUD) recently

proposed revisions to the Good Faith Estimate (GFE) disclosure form. One of the proposed

requirements that has generated considerable controversy is the mortgage broker compensation

disclosure. According to the proposal, mortgage brokers would be required to disclose any

compensation they receive from lenders in connection with the origination of a mortgage loan. 

Loans originated by direct lenders would not be subject to such a requirement.

The proposal is motivated by a concern that mortgage brokers are placing borrowers in

high interest rate loans in order to increase their compensation. HUD believes that brokers may

be able to charge relatively high rates because many consumers believe incorrectly that the

broker is shopping on their behalf and providing the best deal available (HUD 2002a, 49141).1

The compensation disclosure is intended to help consumers more readily recognize the cost of

the loan, more effectively shop for low-cost loans, and better negotiate for reduced origination

charges. 

Although the compensation disclosures are intended to benefit consumers, care must be

taken in formulating any consumer information policy. Seemingly useful disclosures designed

with good intent can produce unintended consequences that harm rather than help consumers. 

Consumer research that examines the understandability and likely effect of the disclosures is

essential to formulating policies that achieve the desired goals.

This study presents the results of an experiment that examines the effect of broker

compensation disclosures on consumers and competition in the mortgage loan market. The study

finds that the disclosures are likely to have significant adverse effects. Although the

compensation disclosures are intended to help consumers understand the cost of mortgage loans,

increase price competition, and lower costs to consumers, the disclosures instead are likely to

confuse consumers, lead a significant proportion of consumers to misunderstand loan costs and

mistakenly choose more expensive loans, reduce competition for mortgage originations, and

possibly increase costs for all mortgage customers.

1.1 HUD’s RESPA Reform Proposal

In July 2002, HUD announced a proposed rule that would amend the regulations that

implement RESPA (HUD 2002a, 49134). The amendments seek to simplify and improve the
Mortgage Broker Compensation Disclosures

2

 Similarly, lenders will pay less than face value for a loan originated with a below-par

interest rate. The difference would be made up by the payment of “discount points” by the

borrower.

2

process of obtaining a home mortgage and reduce settlement costs for consumers. The major

components of the proposal include a complete revision of the GFE disclosure of settlement costs

provided to consumers, the institution of measures to increase the certainty of the cost estimates,

and the removal of regulatory barriers that discourage the packaging of settlement services. All

of these measures seek to benefit consumers and make settlement costs more understandable,

comparison shopping easier, and cost increases at closing less likely. The measures also are

likely to encourage competition and increase efficiencies in the market.

The proposed revision of the GFE seeks to simplify and improve the information

provided to consumers. Settlement costs would be summarized in several major categories rather

than itemized in dozens of individual costs and fees as in the previous form. The revision also

would add new information intended to improve consumer understanding of settlement costs and

the tradeoff between interest rates and points. One component of the proposal is a requirement

that mortgage brokers disclose any compensation they receive from the lender in connection with

the origination of the loan. 

1.2 Yield Spread Premiums

The amount that a lender will pay to purchase a loan originated by a broker depends on

the interest rate of the loan and the “par rate” set by the lender. The par rate is defined as the

interest rate at which the lender will purchase the loan for a price equal to the face value of the

loan. A lender will pay a broker $100,000, for example, to purchase a $100,000 loan originated

at the par rate. Lenders will pay a premium above face value for a loan originated with an abovepar interest rate. The premium is called the “yield spread premium” (YSP).2

 The YSP often

represents a major part of the compensation earned by brokers in connection with the origination

of a loan.

Lenders are willing to pay a premium for a loan originated at an above-par interest rate

because the resulting higher monthly loan payments will provide a higher rate of return. The par

rate is set by the lender as a function of the lender’s cost of capital and other expenses and the

expected performance of the loan. The par rate and YSP may vary across different lenders. The

par rate for a relatively efficient lender, for example, may be lower than for a relatively

inefficient lender.

A direct lender that originates its own loans also will earn a premium from a loan

originated at an above-par rate. If the loan is held in the lender’s portfolio, the lender will receive
Introduction

3

 HUD notes that the YSP equals “the wholesale price of the loan minus the loan

amount” (HUD 2002b, 15).

4

 This is the reverse of the borrower paying additional up-front costs (discount points) to

buy down the interest rate. Thus, YSPs are sometimes described as “negative points.” 

5

 Borrowers also may finance origination charges and other settlement costs but this

option is not available to borrowers already at the maximum loan-to-value ratio.

3

the higher rate of return provided by the higher monthly payments, which, as noted above, is the

basis for the payment of YSPs to brokers. If instead the lender sells the loan to the secondary

market, the lender will receive a price premium that reflects the higher rate of return.

There is little public information on the prevalence or size of YSPs due to the proprietary

nature of lender files (HUD 2002b, 16). A HUD analysis of FHA loans, however, indicates that,

in general, loans originated one-quarter of a percentage point above the par interest rate were

priced 1 percent above the face value of the loan, and loans originated three-quarters of a

percentage point above the par rate were priced 2.5 percent above face value. These prices

would result in YSPs of $1,000 and $2,500, respectively, on a $100,000 loan (HUD 2002b, 17).

The YSP can be viewed as part of the markup over the wholesale price of the loan.3 Just

as any retailer purchases merchandise at a wholesale price, marks it up, and sells it at a higher

retail price, mortgage brokers mark up the price of a loan to cover the origination costs and earn a

profit. 

A YSP received from the lender is part of the compensation that a broker receives for

originating the loan. The broker also may receive other compensation from the lender for the

performance of various services, and compensation directly from the borrower in the form of

borrower-paid origination charges. Congressional testimony by Olson (2002) indicates that 45

percent of broker income comes from YSPs and 55 percent from origination charges paid directly

by the borrower.

The YSP paid by the lender for an above-par loan may be used to reduce the up-front

origination charges that otherwise would paid by the borrower.4 Accepting a higher rate in

exchange for lower settlement costs is particularly attractive to cash-constrained borrowers who

want to minimize up-front closing costs.5 The tradeoff also may be attractive to borrowers who

believe they may hold the loan for only a few years, because they foresee either moving to

another house or refinancing at a lower rate. The tradeoff also may provide tax benefits by

turning nondeductible closing costs into deductible interest payments.
Mortgage Broker Compensation Disclosures

6

 HUD notes that: 

[The proposed rule] would first fundamentally change the way in which mortgage

broker compensation is reported by requiring, in all loans originated by mortgage

brokers, that any payments from a lender based on a borrower’s transaction, other

than the payment for the par value of the loan, including payments based upon an

above par interest rate on the loan (payments commonly denominated “yield

spread premiums”), be reported on the Good Faith Estimate (and the HUD-1/1A

Settlement Statement) as a lender payment to the borrower (footnote omitted)

(HUD 2002a, 49135).

7

 These same concerns have been raised by some consumer groups and other observers. 

See, for example, Rheingold (2002, 2003), Jackson (2002) and Jackson and Berry (2002). For

contrary views, see Olson (2002) and Woodward (2002).

4

 The tradeoff between a higher interest rate and lower up-front costs is common in

today’s mortgage market where many loans are offered with minimal or no origination charges

and sometimes no closing costs. The prevalence of such loans indicates the popularity of this

option with borrowers. 

1.3 Proposed Broker Compensation Disclosure

One of the major changes proposed by HUD is a requirement that any compensation paid

by a lender to a broker in connection with the origination of a mortgage loan be credited fully to

the borrower and disclosed in the GFE.6 The proposal is motivated by a concern that mortgage

brokers are placing borrowers in above-par loans and using the YSPs to increase their

compensation rather than reduce the up-front charges paid by the borrowers.7 When this occurs,

borrowers pay higher interest rates without receiving a compensating benefit of lower up-front

costs.

HUD argues that brokers are able to charge above-par rates because many consumers

believe incorrectly that the broker is shopping on their behalf and providing them with the best

deal available (HUD 2002a, 49141). These consumers may not comparison shop with other loan

originators to evaluate the cost of the loan and may be unaware that a less expensive par-rate loan

may be available. The proposed compensation disclosure is intended to help consumers more

readily recognize the cost of the loan, more effectively shop for low-cost loans, and better

negotiate for reduced origination charges. 

The proposed compensation disclosure describes the YSP and any other lender-paid

compensation as a “lender payment to borrower for higher interest rate.” The disclosure appears
Introduction

8

 Any discount points paid by the borrower also would be listed in this section as a

“borrower payment to lender for lower interest rate.”

9

 Thus, adding the net origination charges paid by the borrower and the YSP and other

compensation paid by the lender yields the gross origination charge, or total broker

compensation. Any discount points paid by the borrower to the lender would be subtracted when

calculating broker compensation because these would be credited to the lender.

5

 $1,500.00

in a section of the GFE labeled “interest rate dependent payment.”8 A disclosure of the “gross

origination charge,” defined as the total compensation received by the broker from both lender

and borrower payments, also would be added. The origination charges payable by the borrower

would be disclosed as the “net origination charge.”9 The proposed origination charge and YSP

section of the GFE is reproduced below in Figure 1.1. The entire proposed GFE is presented in

Appendix A.

Figure 1.1 Origination charge disclosures in the original proposal

A. Origination Charges (HUD-1 800 Series)* $ 4,000.00

 See Attachment A-1 listing origination charge subtotals for the lender and the broker.

B. Interest Rate Dependent Payment (200, 900)***

Until you lock in your interest rate these payments may change.

 (1) (+) Borrower Payment to Lender for Lower Interest Rate: $ 

 (2) (-) Lender Payment to Borrower for Higher Interest Rate: ! $ 2,500.00

NET LOAN ORIGINATION CHARGE DUE FROM BORROWER (Sum of A and B):

Only originators meeting the HUD definition of “mortgage broker” would be required to

disclose YSPs and other compensation not paid by the borrower. HUD defines a mortgage

broker as an originator who “table funds” or acts as an intermediary in a mortgage loan (HUD

2000a, 49134, footnote 2). The definition is narrower than the common usage of the term

“mortgage broker.” Mortgage brokers that are the “real source of funds” for a loan, such as

correspondent brokers using warehouse lines of credit, are not considered to be brokers under the

definition. 

HUD cites estimates from LaMalfa (2001), who found that HUD-defined brokers

accounted for 31 percent of total mortgage originations in 2000 (HUD 2002b, 10). This implies 
Mortgage Broker Compensation Disclosures

10 The LaMalfa (2001) figures cited by HUD also estimate that 38 percent of originations

in 2000 were by retail lenders and 31 percent by correspondent lenders with warehouse lines of

credit (HUD 2002b, 10). Although the latter may be considered “brokers” in the popular usage

of the term, both types of originators are referred to as “direct lenders” in this report to

distinguish them from HUD-defined brokers.

11 The FTC staff comment also made other suggestions, including that HOEPA loans not

be excluded from the packaging proposal, that the GFE disclose multiple payment amounts for

loans that have more than one fixed payment amount, and that additional measures be undertaken

to enhance the reliability of cost estimates. 

12 Consumers, particularly those who intend to hold the mortgage for the full term, also

may find it useful to comparison shop on the annual percentage rate (APR). The APR states the

total credit cost of the loan, including interest and other finance charges, as a yearly rate, taking

into account the timing of the payments over the life of the loan.

6

that compensation disclosures would be required in about one-third of all mortgage originations

but not required in the other two-thirds.10

1.4 Concerns about the Proposed Compensation Disclosure

FTC staff submitted a public comment that generally supported HUD’s RESPA reform

proposal, including efforts to make the GFE more understandable and easier to use, increase the

certainty of settlement cost estimates, and allow the packaging of settlement services (FTC

2002). FTC staff raised several concerns, however, about the potential benefits and costs of the

proposed compensation disclosure, and recommended consumer testing to ensure that the

disclosure and other changes to the GFE could be easily understood and used by consumers.

11

FTC staff noted that the potential benefit of the proposed compensation disclosure is not

readily apparent. Seller compensation is rarely disclosed in consumer markets. This is not

surprising because consumers generally base their purchase decisions on the prices they

themselves must pay—not on seller compensation. Consumers comparison-shop on these prices

to find the best deal. Retailers do not disclose their markup over wholesale price but simply

disclose the price consumers must pay. 

Shopping should not be different in the market for mortgage loans. We would expect

mortgage shoppers to focus on the costs they must pay for the loan—the interest rate, monthly

payments, and up-front costs—not how much the broker is earning on the transaction. 

Comparison shopping on these costs will allow consumers to find the least expensive loan that

fits their needs.12
Introduction

13 HUD recognizes the possibility that some consumers might be confused by the

disclosure and discussed this issue in its Economic Analysis (HUD 2000b, 32-33).

7

The compensation disclosure is intended to benefit consumers by making high cost loans

more transparent, thereby leading consumers to negotiate for lower origination charges. The

underlying idea is that when consumers see how much a mortgage broker is earning they will be

inclined to bargain for a greater share of the markup. This is possible, but more direct measures

might better assist consumers to avoid high cost loans. A loan with a YSP will have a higher

interest rate than a par rate loan. Consumers can readily observe the interest rate and compare it

to competing loan offers. This is particularly true in the prime loan market where interest rates

are widely advertised, listed in newspaper charts and Internet sites, and often obtainable by

telephone or fax from competing originators. Clear disclosure of the interest rate and other loan

costs is likely to assist consumers better than disclosure of broker compensation.

Additional disclosures might be useful to encourage comparison shopping. For example,

a disclosure informing consumers that the originator is not necessarily shopping on their behalf,

and may not be providing the lowest cost loan, might be sufficient to correct any borrower

misperceptions about the role of mortgage originators. Such a disclosure could act to induce

greater consumer scrutiny of loan costs and more comparison shopping across originators. 

HUD’s proposed revisions to the GFE include such a disclosure.

Finally, any benefits of the compensation disclosure would be limited by the stipulation

that they are required only for HUD-defined brokers, which means that the disclosure would

appear in only about a third of mortgage originations. Thus, even if the disclosure helped

consumers, the benefits would arise in only a minority of mortgage transactions. Consumers

would still need to comparison shop on interest rates, monthly payments, and up-front costs in

most originations.

In addition to raising questions about the benefits of the proposed compensation

disclosure, FTC staff also raised concerns that the disclosure could confuse consumers and lead

some to focus primarily on the broker’s compensation rather than the cost of the loan. Such

confusion could distort consumer perception of loan costs and lead some to choose mistakenly

loans that were more expensive than available alternatives.13

The concern about consumer confusion is heightened by the asymmetric nature of the

disclosures. A broker and a direct lender may be offering the same loan, at the same interest rate,

with the same closing costs, and earning the same compensation, but only the broker would be

required to disclose the YSP and include it in the gross origination charge. The figures disclosed

in broker and lender GFEs will be different even though the bottom line costs to the consumer

are the same. If the disclosures lead consumers to focus on the gross origination charge or YSP
Mortgage Broker Compensation Disclosures

14 Figures in Olson (2002) and cited by HUD (2002b) indicate that the share of

mortgages originated by brokers grew from practically zero in 1980 to 20 percent in 1987 and 65

percent in 2001. These figures include all brokers, not just those fitting the HUD broker

definition.

15 Only the origination charge section of the GFEs are shown. The format replicates the

format published in the proposed rule (HUD 2002a).

8

rather than the net origination charge, the broker loan may appear more expensive than the

identical direct lender loan. The disclosures also may make a broker loan look more expensive

even when it costs less than a direct lender loan.

Compensation disclosures also could have adverse effects on market efficiency and

competition. A consumer focus on originator compensation rather than consumer costs might

distort consumer choice away from the lowest cost providers, leading to less efficient, rather than

more efficient outcomes. Relatively low-cost mortgage lenders that can provide low interest rate

loans may be able to pay more to mortgage brokers who find them customers than would

relatively high cost mortgage lenders. A consumer focus on compensation would reward the less

efficient, higher cost lenders and lead to less efficiency in the market, which ultimately could

result in higher prices for consumers.

The asymmetric nature of the disclosures may aggravate any anticompetitive effects. A

consumer focus on originator compensation may create an unwarranted bias against broker loans

because only brokers would be required to make the disclosures. Such a bias would make it

more difficult for brokers to compete with direct lenders and possibly lead to a reduced level of

competition in the market. If brokers are relatively low-cost mortgage originators, as some

observers suggest (see Olson, 2002), and as the tremendous growth in the broker share of the

market may indicate, then any competitive disadvantage imposed on brokers could result in

higher mortgage costs for all consumers.14

1.5 Example of the Asymmetric Disclosure and Possible Consumer Confusion

The asymmetric disclosure requirement and the possible consumer confusion are

illustrated in the following example. Figure 1.2 illustrates the origination charge disclosures that

would be required under the proposed GFE for a broker making a hypothetical loan. Figure 1.3

illustrates the disclosures that would be required for a direct lender making the same loan.15

Although the two loans may have the same interest rate (not shown in the figures), the

same origination charges due at settlement ($1,500 for each loan), and the same compensation

earned by both the broker and direct lender, only the broker would be required to disclose the

amount of compensation and include this amount in the disclosed gross origination charge. The
Introduction

9

 $1,500.00

 $1,500.00

asymmetry results in the disclosure of a larger gross origination charge for the broker than for the

direct lender ($4,000 versus $1,500) and a disclosure in the broker loan of a “lender payment to

borrower for higher interest rate” ($2,500) that is kept by the broker. 

Figure 1.2 Proposed origination charge disclosures for a hypothetical loan offered by a broker

A. Origination Charges (HUD-1 800 Series)* $ 4,000.00

 See Attachment A-1 listing origination charge subtotals for the lender and the broker.

B. Interest Rate Dependent Payment (200, 900)***

Until you lock in your interest rate these payments may change.

 (1) (+) Borrower Payment to Lender for Lower Interest Rate: $ 

 (2) (-) Lender Payment to Borrower for Higher Interest Rate: ! $ 2,500.00

NET LOAN ORIGINATION CHARGE DUE FROM BORROWER (Sum of A and B):

Figure 1.3 Proposed origination charge disclosures for the same loan offered by a direct lender

A. Origination Charges (HUD-1 800 Series)* $ 1,500.00

 See Attachment A-1 listing origination charge subtotals for the lender and the broker.

B. Interest Rate Dependent Payment (200, 900)***

Until you lock in your interest rate these payments may change.

 (1) (+) Borrower Payment to Lender for Lower Interest Rate: $ 

 (2) (-) Lender Payment to Borrower for Higher Interest Rate: $ 

NET LOAN ORIGINATION CHARGE DUE FROM BORROWER (Sum of A and B):

The example illustrates the concerns raised about the compensation disclosure. 

Borrowers examining the two loans to determine which loan costs less need only examine the net

origination charge, which is the charge payable by the borrower ($1,500 for both loans). 

Borrowers do not need to know the broker’s compensation to evaluate the costs or to choose the

less expensive loan. If borrowers focus instead on the gross origination charge or YSP

disclosure, they may mistakenly believe that the broker loan is more expensive because it

discloses a larger gross charge and a YSP that is kept by the broker. Any similar compensation

earned by the direct lender is not disclosed. This would place the broker at a competitive

disadvantage relative to the direct lender and could adversely affect the level of competition in

the marketplace. 
Mortgage Broker Compensation Disclosures

10

 $1,000.00

Consumers would be equally well off with either loan in the above example because the

net charge to the borrower is the same in both loans. But the possible confusion caused by the

asymmetric disclosures could harm consumers if the broker loan were less expensive. Figure 1.4

illustrates the disclosures for a different hypothetical loan offered by a broker. In this loan, the

YSP is larger than in the previous example ($3,000 rather than $2,500), making the net

origination charge lower ($1,000 rather than $1,500). If consumers compare the broker loan in

Figure 1.4 to the direct lender loan in Figure 1.3 and focus on the gross origination charge and

YSP disclosures, they may mistakenly conclude that the direct lender loan is less expensive

because they see a much larger gross charge and YSP in the broker loan. If this confusion leads

consumers to choose the direct lender rather than broker loan, they would pay $500 more in upfront settlement charges. The compensation disclosures would increase rather than decrease the

settlement costs paid by these consumers.

Figure 1.4 Proposed origination charge disclosures for a different hypothetical loan offered by a broker

A. Origination Charges (HUD-1 800 Series)* $ 4,000.00

 See Attachment A-1 listing origination charge subtotals for the lender and the broker.

B. Interest Rate Dependent Payment (200, 900)***

Until you lock in your interest rate these payments may change.

 (1) (+) Borrower Payment to Lender for Lower Interest Rate: $ 

 (2) (-) Lender Payment to Borrower for Higher Interest Rate: ! $ 3,000.00

NET LOAN ORIGINATION CHARGE DUE FROM BORROWER (Sum of A and B):

1.6 Research Objectives

This study examines the effect of broker compensation disclosures on consumer

understanding of loan costs and consumer loan choices. More specifically, the study examines

the impact of the disclosures on consumers’ ability to identify the less expensive of two mortgage

loans, consumers’ choice of loans, and competition among mortgage originators. The study also

examines whether the effect of the disclosures varies with different formats and language, and

the extent to which consumers understand the disclosures. 
16 The consumer research firm was U.S. Research Company of Rutherford, New Jersey.

17 The questionnaire is presented in Appendix C. Different versions of the questionnaire

were used to rotate the order of some questions and to test different variations of the YSP

disclosure. These variations are described in detail later in this chapter.

11

2

METHODOLOGY

This study uses a controlled experiment to examine the effect of YSP disclosures on

consumers and competition in the mortgage market. Over 500 recent mortgage customers were

shown cost information about two hypothetical mortgage loans and asked a series of questions. 

Two questions were at the core of the test. In one, respondents were asked to identify which of

the two loans would cost them less and, in the other, which loan they would choose if they were

shopping for a mortgage. The findings yield conclusions about the likely effect of YSP

disclosures on consumers’ ability to identify the less expensive of two mortgage loans,

consumers’ choice of loans, and competition among mortgage originators. The study also

examines whether the effect of the disclosures varies with different formats and language and the

extent to which consumers understand the disclosures.

2.1 Experimental Setting and Test Questions

The study is based on one-on-one, in-person interviews of recent mortgage customers

conducted by a consumer research firm.

16 Respondents were qualified for the sample if they had

taken out a mortgage in the previous three years or were currently shopping for a mortgage. The

interviews were conducted in February and March 2003 in interview facilities located in

shopping malls. The malls were located in diverse geographic regions of the continental United

States.

Respondents first were asked a “warm up” question about how many lenders or brokers

they had contacted when shopping for their last mortgage and whether they previously had done

business with the company from which they obtained their mortgage.17 Respondents who had

not taken out a mortgage in the previous three years but were currently shopping for one were

asked how many lenders or brokers they had contacted so far.

Respondents then were asked the first of the two key questions of the study—the cost

comparison question. Respondents were given cost disclosure forms for two hypothetical

mortgage loans. Each loan was identified with only a single letter—“Loan G” and “Loan R” in
Mortgage Broker Compensation Disclosures

18 Letter designations from the beginning of the alphabet, such as “A” and “B,” were not

used in order to avoid bias that might result if respondents associated the letters with grades.

12

one of the tests and “Loan V” and “Loan M” in the other.18 Interviewers asked respondents to

look at the information and tell them which of the two loans would cost less. Respondents were

given as much time as they needed to examine the information and were given the explicit option

of saying that both loans cost the same. The text of the question read:

Now I'm going to show you some information about the cost of two different

mortgage loans. I'm going to ask you to look at the information and tell me which

of the two loans would cost you less. (Place the first set of loan cards on the

table in front of the respondent.) The information on the cards does not include

some costs such as homeowners insurance and property taxes. Assume that any

costs not listed are the same for both loans. Please look at this information, and

when you are ready, tell me, based on the information shown on the cards about

the loan terms and settlement costs, which loan would cost you less. Would

“Loan G” cost you less, would “Loan R” cost you less, or would both loans cost

you the same? (Question 3)

Respondents were asked an open-ended follow-up question that probed the reasons for

their response. Interviewers probed for additional reasons until unproductive and recorded the

verbatim responses. Next, respondents were asked to rate how certain they were of their

response. A five point scale ranging from “very certain” to “very uncertain” was provided for the

response categories. 

Respondents then were asked the second key question of the study—the loan choice

question:

If you were shopping for a mortgage loan and had to choose between one of these

two loans, which loan would you choose, “Loan G” or “Loan R?” (Question 6) 

As before, respondents were asked an open-ended follow-up question that probed the

reasons for their response. Interviewers again probed for additional reasons until unproductive. 

The experiment then was repeated with a different set of loans. The format and language

of the disclosure form was the same as in the first test but the cost figures were different. 

Respondents were asked the same series of questions as before—the cost comparison question,

the loan choice question, the two open-ended follow-up questions, and the certainty rating

question. The order of the two tests was rotated across respondents, as was the order of the loans

in each test, to counterbalance any order effects.
Methodology

19 As discussed in Section 2.4, below, one loan in each pair was considered a “broker

loan” and one a “direct lender loan.”

13

After the completion of the second test, interviewers pointed to the YSP disclosure in the

form for the “broker” loan, read the disclosure, and asked respondents what it meant to them.19

Interviewers probed for additional detail until unproductive and recorded the verbatim responses.

To complete the interview, respondents were asked two questions about their prior

mortgage experience. Respondents who had a mortgage transaction in the previous three years

were asked how much time had passed since their most recent transaction. All respondents were

asked how many mortgages they had obtained.

The interview responses were coded and compiled into a data set by the consumer

research company that conducted the interviews. The data were analyzed by FTC staff.

2.2 Disclosure Groups

The sample was divided into five “disclosure groups” to which respondents were

randomly assigned. Each group consisted of either 103 or 104 respondents. The loan costs were

identical across the groups but the format, language, and, in some respects, content of the

disclosure forms differed. The disclosure groups are listed and described in Table 2.1.

The key difference in the content of the disclosure forms was that a YSP disclosure was

included in the information presented to some groups but excluded from the information

presented to others. The YSP disclosure groups served as treatment groups and the non-YSP

groups as control groups. Comparison of the test results between control and treatment groups

provides an estimate of the effect of the YSP disclosures.

The other key difference in the disclosure forms shown to the different groups was the

format of the form and the language of the YSP disclosure. Three versions of the YSP disclosure

were tested: one based on the disclosure published by HUD as part of its RESPA reform proposal

in July 2002 (the "original HUD proposal"), one prepared after discussions with HUD staff in

January 2003 concerning YSP disclosures (the "revised prototype"), and one that used the revised

prototype format but with alternative YSP disclosure language drafted by FTC staff ("FTC YSP

language").

The disclosure forms for the revised prototype and FTC YSP language versions both used

a substantially different format than the original HUD proposal version. The location of the YSP

disclosure, for example, was changed in both, moving from the first page to the second page of

the form. The revised prototype and FTC YSP language versions differed from each other in the 
Mortgage Broker Compensation Disclosures

14

Table 2.1 Disclosure Groups

Disclosure group Description

Treatment groups

Original proposal GFE format and YSP disclosure originally set forth in the proposed

rule published in the Federal Register in July 2002.

Revised prototype GFE format and YSP disclosure prepared after discussions with

HUD staff in January 2003.

FTC YSP language The revised prototype format but with substituted YSP disclosure

language drafted by FTC staff.

Control groups

Original proposal 

(YSP disclosure omitted)

Same as the original proposal form used in the treatment group but

with the YSP disclosure omitted

Revised prototype

(YSP disclosure omitted)

Same as the revised prototype form used in the treatment group but

with the YSP disclosure omitted

Source: FTC Bureau of Economics Mortgage Broker Compensation Disclosure Study.

language used to describe the YSP. By employing three substantially different versions of the

forms, the study provides a test of the effect of variations in the format, language, and location of

the YSP disclosure.

 

Separate control groups were used for the original proposal and the revised prototype. 

The disclosure forms in each control group were identical to the forms in the corresponding

treatment group with one exception—the YSP disclosure was omitted from the control version. 

A separate control group was not needed for the treatment group using YSP language drafted by

FTC staff. This form was otherwise identical to the revised prototype, allowing both treatment

groups to use the same control. Thus, the study design includes a total of five disclosure

groups—three treatments and two controls.

2.3 Test Disclosure Forms

The test disclosure form used for the original HUD proposal group was based on the form

in the HUD proposal but was not a complete replica. The test form replicated the YSP,

origination cost, and total settlement cost disclosures, as well as the overall style and format of
Methodology

15

the HUD form, but abstracted from some of the unrelated detail and settlement cost itemization,

such as the HUD-1 series numbers and the explanations of tolerances for changes to the cost

estimates. Similarly, the test forms for the revised prototype and FTC language groups

abstracted from some of the detail that would be included in a full GFE form. All of the test

forms used in the study are presented in Appendix D.

The use of test forms that abstracted from some of the unrelated detail in the full GFE

enabled respondents to compare the cost of the two loans in less time than would have been

required if the complete forms had been used. This increased the likelihood that respondents

would see and read the YSP disclosure. If the more detailed, full GFEs were used, some

respondents may not have read all of the information in the form, including the YSP disclosure. 

This would have made it more difficult to identify the effect of the disclosure. Thus, the study

results should be interpreted as an estimate of the effect of YSP disclosures on consumers who

notice and read the disclosure. The disclosure may be less influential in actual shopping

situations if a smaller proportion of consumers read the disclosure. 

All versions of the test forms included information on various loan terms and settlement

costs. Loan terms included the loan amount, interest rate, loan term (number of years), and

monthly payment. Settlement costs included the origination charge, title services and title

insurance charge, government taxes and fees, and appraisal fee. A total settlement cost figure

summed the individual charges. In some versions, the sum of settlement costs other than

origination charges also was disclosed.

A YSP disclosure was added to the settlement costs section of the forms in the three YSP

treatment groups. Also, the YSP amount was added to the origination charge to obtain a “gross”

charge, which was disclosed as the “origination charge” (in the original proposal) or “service

charge” (in the revised prototype). A “net” or “adjusted” origination charge, which subtracted

the YSP from the gross charge, also was disclosed. This followed the treatment of origination

charges in the HUD proposal.

The revised prototype and FTC language versions of the test forms differed significantly

from the original proposal forms in format, style, and language. One of the more significant

differences was that the test forms for the original proposal used a one page format but the forms

for the revised prototype and FTC language versions used a two page format. In the two latter

versions, the YSP disclosure and settlement cost itemization were moved to the second page of

the form, and a summary of the settlement costs was added to the first page.

The revised prototype and FTC language versions also differed from the original HUD

proposal version in the language used for the YSP. In the revised prototype version, the YSP and

discount points were referred to as a “charge or credit for the specific interest rate chosen.” The

YSP was described as follows: “For a higher interest rate loan—the payment by the lender on
Mortgage Broker Compensation Disclosures

20 Discount points were described as follows: “For a lower interest rate loan—the

additional up-front charge you pay the lender.”

16

your behalf that reduces the up-front charge you pay.”20 The gross origination charge was

disclosed as “our service charge” and the net origination charge as “your adjusted origination

charges.” In the FTC version the YSP was described as: “Rebate—applicable if borrower is

paying a higher interest rate to reduce up-front costs.”

2.4 Loan Cost Figures

The cost comparison and loan choice tests were conducted twice with each respondent. 

In one test, one of the loans was less expensive than the other. In the other test, both loans cost

the same. The cost figures used in each test are listed in Table 2.2.

In the test in which one loan was less expensive, the interest rates, monthly payments, and

other loan terms were the same for both loans, but one loan had lower total settlement costs

because it had a lower net/adjusted origination charge. These cost specifications made one loan

unambiguously less expensive than the other, avoiding any trade-off between lower rates and

lower up-front costs, over which consumers may have different preferences.

One loan in each test was considered to be a “broker” loan and the other a “direct lender”

loan. The loans were not identified as broker or lender loans to respondents. The only

identification was a single letter, “Loan G” and “Loan R” in the test with one loan less expensive

and “Loan V” and “Loan M” in the test with both loans costing the same. 

In the YSP disclosure groups, a YSP was disclosed for the broker loan but not the direct

lender loan, following the asymmetric disclosure policy proposed by HUD. In the test in which

one loan was less expensive, the less expensive loan was treated as the broker loan. This meant

that the less expensive loan disclosed a YSP but the more expensive loan did not.

In the test in which one loan was less expensive than the other, the only cost difference

between the two loans was the net origination charge, which was $300 lower in the broker loan

than the lender loan. This cost difference also made the total settlement charges $300 lower in

broker loan.

Although the broker loan had a lower net origination charge, it disclosed a $3,100 YSP. 

The lender loan listed the YSP as “zero.” The YSP was added to the net origination charge to

obtain the gross charge, which was disclosed as the “origination charge” or “service charge.” 

This made the disclosed gross origination charge $2,800 higher in the broker loan than in the

lender loan. Thus, the broker loan disclosed lower net origination charges and total settlement 
Methodology

17

Table 2.2 Loan Cost Figures

Test with Broker Loan

Less Expensive

Test with Both Loans

Costing the Same

Loan G

(Broker)

Loan R

(Lender)

Loan V

(Broker)

Loan M

(Lender)

Loan Terms

 Amount borrowed $150,000 $150,000 $125,000 $125,000

 Interest rate 5.75% 5.75% 6.0% 6.0%

 Loan term (years) 30 30 30 30

 Monthly payment $875 $875 $750 $750

Settlement Charges

 Origination charge / service charge $4,300 $1,500 $3,200 $700

 Yield spread premium -$3,100 0 -$2,500 0

 Net/adjusted origination charge $1,200 $1,500 $700 $700

 Title services and title insurance $500 $500 $600 $600

 Government fees and taxes $300 $300 $200 $200

 Appraisal fee $200 $200 $100 $100

 Total charges for other settlement services $1,000 $1,000 $900 $900

 Total settlement charges $2,200 $2,500 $1,600 $1,600

Source: FTC Bureau of Economics Mortgage Broker Compensation Disclosure Study.

 Note: The "net/adjusted origination cost" figure was disclosed as the "origination charge" in the control

groups and the separate listing of the "net/adjusted" charge was dropped.

costs than the lender loan, but a higher YSP and gross origination charge.

In the test in which both loans cost the same, all loan and settlement terms, including the

net origination cost, were the same for both loans. The net origination charge was $700 in both
Mortgage Broker Compensation Disclosures

21 Potential respondents were excluded if they had participated in another market

research survey in the past three months or if they or anyone in their household had ever worked

in a marketing research, advertising, or public relations firm, or a bank, mortgage broker, or

finance company. Potential respondents also were excluded if they usually wore eyeglasses or

contact lenses to read and did not have the glasses or contacts with them at the interview. A copy

of the screening questionnaire is provided in Appendix B.

18

loans. The only difference between the loans was that the broker loan disclosed a $2,500 yield

spread premium and added that amount to the net origination charge to obtain a gross origination

charge of $3,200, which was $2,500 higher than in the lender loan.

In the control groups, in which a YSP disclosure was not included in the loan cost

information, only one origination charge figure was disclosed. This was the net amount to be

paid by the consumer, which corresponds to the figure disclosed as the “net/adjusted origination

charge” in the YSP disclosure groups. In the control groups, this figure was disclosed simply as

the “origination charge” and the separate listing of the net charge was dropped. 

The only difference between the two loans in the control groups in the test in which one

loan was less expensive than the other was that the origination charge and total settlement costs

were $300 lower for the broker loan than the lender loan. In the test in which both loans cost the

same, all loan and settlement costs were identical.

2.5 Sample

The sample consisted of 517 consumers recruited through a mall-intercept procedure in

eight shopping malls across the country. The malls were located in the metropolitan areas of

Boston, Edison (New Jersey), Chicago, St. Louis, Atlanta, Orlando, Austin, and Los Angeles. 

Respondents were qualified for the sample if they had engaged in a mortgage transaction

within the previous three years or were currently shopping for a mortgage and were the principal

or joint household decision maker on the mortgage transaction. This ensured that respondents

had relatively recent mortgage shopping experience and would be at least somewhat familiar

with mortgage cost information and terminology. Any type of mortgage transaction was

acceptable for qualification, including purchase money loans, refinancing of existing loans,

second mortgages, and home equity loans. Respondents were paid a nominal compensation of

two dollars for their participation.21

Sampling quotas were specified in each disclosure group for respondent education level,

race/ethnicity, age, and recent mortgage experience. This ensured that the samples reasonably 
Methodology

22 The figures are from wave 12 of the 1996 SIPP panel. The interviews for this wave

were conducted from December 1999 through March 2000. 

23 Quotas were specified for younger and middle-age groups to ensure against a tendency

of mall intercept surveys to over-sample younger shoppers. The quota for the oldest age group

was set at 55 or older rather than 65 or older because the SIPP data indicated that the latter group

accounted for less than 6 percent of the persons obtaining a mortgage in the previous three years. 

A quota for low income customers also was considered but not used because education level

rather than lower incomes is more likely to be related to consumer ability to understand mortgage

cost information. 

24 The 10 percent figure is a rough estimate of the size of this group relative to consumers

who had obtained a mortgage in the previous three years. The estimate was based on the

assumptions that the number of mortgage transactions per month in the few months following the

survey would be roughly the same as the monthly average over the previous three years and that

consumers shop for mortgages for up to four months. Adding four months of current shoppers to

the 36 months of previous customers yields the equivalent of 40 months of transactions with the

former representing 10 percent of the total. The actual figure would be higher than this estimate

if the level of transactions at the time of the survey was higher than the earlier average, which is

likely due to falling interest rates over this period. On the other hand, the actual figure would be

lower if consumers shop for a shorter period of time, or if some current shoppers also obtained

another mortgage earlier in the sample period (and thus were double counted).

19

reflected the population of mortgage customers on several key characteristics that could impact

consumer understanding of the disclosures.

The education, race/ethnicity, and age quotas were based on data from the 1996 U.S.

Census Bureau Survey of Income and Program Participation (SIPP) for the percentage of

households that had obtained a mortgage within the previous three years.22 The quotas for each

disclosure group were specified at (1) approximately 31 percent of respondents with no more

than a high school education; (2) approximately 13 percent of respondents of African American

or Hispanic race/ethnicity; and (3) approximately 29 percent of respondents age 18 to 34, 55

percent age 35 to 54, and 16 percent age 55 or older.23

A quota of approximately 10 percent was specified in each disclosure group for

respondents who had not obtained a mortgage in the previous three years but were qualified for

the study because they were currently shopping for one.24

The sample cannot be interpreted as a nationally representative sample of the universe of

mortgage customers because it is a convenience sample chosen through a mall-intercept

procedure in particular shopping malls. Care must be taken in generalizing the study results to
Mortgage Broker Compensation Disclosures

20

all mortgage customers. This limitation is somewhat ameliorated through the use of multiple

malls in geographically diverse areas of the country and the use of sampling quotas to ensure that

potentially vulnerable customers are adequately represented. And although the sample cannot be

treated as nationally representative, there do not appear to be any reasons to suggest that the

sample presents a biased picture of mortgage customers.
25 See the discussion of the sampling quotas in Section 2.5, above.

26 Nine percent of the respondents refused to give their income and 1 percent said they

did not know. The percentages given in the text are not adjusted for the “refused” and “don’t

know” responses.

21

3

RESULTS

The study results are presented in this section. First, the demographic characteristics and

prior mortgage experience of the respondents are summarized. Next, the results of the key cost

comparison and loan choice questions are presented. Last, respondents’ explanation of their

responses to the cost comparison and loan choice questions and their understanding of the YSP

disclosures are discussed.

3.1 Sample Characteristics

Demographic characteristics. The demographic characteristics of the sample are

presented in Table 3.1 for both the overall sample and each disclosure group. (All tables appear

at the end of the chapter.) Twenty-nine percent of the 517 respondents in the study had no more

than a high school education, closely matching the 31 percent sampling quota that was based on

the SIPP.25 Another 2 percent had attended technical or trade school. Thirty-one percent had

some college, 29 percent had graduated college, and ten percent had attended some type of postgraduate school.

Twenty-nine percent of the respondents were 18 to 34 years old, 57 percent were 35 to

54, and 15 percent were 55 or older, closely matching the sampling quotas of 29, 55, and 16

percent, respectively. Seven and a half percent of respondents were less than 25 years old and

four and a half percent were 65 or older.

Four and a half percent of the respondents had annual household incomes less than

$25,000, 15 percent had incomes of $25,000 to $39,999, 16 percent had incomes of $40,000 to

$49,999, 25 percent had incomes of $50,000 to $74,999, and 31 percent had incomes of $75,000

or more.26 These percentages were fairly close to the income distribution of households who had

obtained a mortgage in the previous three years as given in the SIPP data used for the sample

quotas in other demographic characteristics. The biggest differences were that the study sample 
Mortgage Broker Compensation Disclosures

27 After recalculating the percentages to exclude the “refused” and “don’t know”

responses, 5 percent of the study sample had household incomes less than $25,000, compared to

11 percent in the SIPP data, and 18 percent of the households had incomes from $40,000 to

$49,000, compared to 12 percent in the SIPP data. The differences in other income categories

were less than 1 percentage point. (These figures differ from the ones presented in Table 3.1

because the latter do not exclude the “refused” and “don’t know” responses.)

28 About half the Hispanic respondents (3 percent of all respondents) either volunteered

“Hispanic” to the race question or refused to give a race.

22

somewhat under-represented the lowest income group and over-represented the $40,000 to

$49,000 middle income group.27

Six percent of the respondents were of Hispanic or Latino ethnic origin. Eighty-three

percent were White, 10 percent were Black or African American, 4 percent Asian, and less than 1

percent American Indian, Native Alaskan, Native Hawaiian, or other Pacific Islander.28 Sixteen

percent of the respondents were either Black or Hispanic, which was close to the 13 percent

sampling quota. 

The sample was split nearly evenly between men and women. Fifty-one percent of the

respondents were male and 49 percent female.

Differences in the distribution of demographic characteristics across the disclosure groups

were examined using chi-square tests of independence. For each demographic variable, chisquare tests were conducted on all disclosure groups combined (Pearson chi-square) and for each

YSP treatment and corresponding control group combination (Fisher exact tests). The chi-square

p-values are presented in Table 3.1. Few significant differences were found across the disclosure

groups. Of the 28 chi-square tests conducted, only one was significant at the 5 percent level and

two others at the 10 percent level. 

Multivariate analysis was used as a further check of the possible effect that any

differences in demographic characteristics across disclosure groups may have on the results of

the cost comparison and loan choice questions. As discussed in more detail in those sections,

below, the analysis found that demographic characteristics did not have a confounding effect that

distorted the treatment and control group comparisons. 

Prior mortgage experience. The prior mortgage experience of the respondents is

presented in Table 3.2. Almost all of the respondents had experience shopping for and obtaining

a mortgage and most had done so more than once. Ninety-six percent of the respondents had
Results

29 Table 3.2 shows that 1.9 percent of respondents answered “don’t know” when asked

the number of mortgages they had obtained. Responses to other questions indicate that all but

two of these respondents had obtained a mortgage sometime in the previous three years.

30 Eight percent of the respondents said they did not know how many lenders or brokers

had been contacted. These respondents are included in the base in the calculation of the

percentage figures presented above.

23

obtained a mortgage; only 4 percent had not.29 Twenty-eight percent of the respondents had

obtained one mortgage, 41 percent two or three, 16 percent four or five, and 9 percent six or

more. The mean number of mortgages was 2.8 and the median was two. 

Most respondents had relatively recent experience obtaining a mortgage, reflecting the

qualification criteria for the study. Twenty-five percent of the respondents had taken out their

most recent mortgage within the previous six months, 40 percent within the previous year, 61

percent within the previous two years, and 87 percent within the previous three years. Twelve

percent of the sample had not taken out a mortgage in the previous three years, including the 4

percent who never had a mortgage.

Twenty-nine percent of the respondents were currently shopping for a mortgage. Fifty-six

percent of these had obtained at least one other mortgage in the previous three years. 

Approximately half of the respondents were the primary household decision maker on

their mortgage. The other half were joint decision makers with other household members.

Most respondents had done at least some comparison shopping when obtaining their most

recent mortgage. Seventy percent of the 451 respondents who had taken out a mortgage in the

previous three years had contacted at least two lenders or mortgage brokers. Twenty-three

percent contacted exactly two lenders or brokers, 28 percent contacted three, and 18 percent

contacted four or more. Twenty-eight percent of these respondents contacted only one lender or

broker. The mean number of contacts was 2.7 and the median was two. Thirty-two percent of

the respondents had done business previously with the company they selected for their most

recent mortgage. Sixty-eight percent had not.

Most of the respondents who were currently shopping for a mortgage also had done at

least some comparison shopping. Of the 66 respondents who had not recently obtained a

mortgage but were currently shopping for one, 86 percent had contacted at least one lender or

broker and 68 percent had contacted at least two. Only 6 percent had not yet contacted any

lender or broker.30 The mean number of contacts for these respondents was 2.3 and the median

was two. The difference between the mean number of contacts in this group and the mean for 
Mortgage Broker Compensation Disclosures

24

respondents who had taken out a mortgage in the previous three years was not statistically

significant.

As with the demographic characteristics, differences in the distribution of experience

characteristics across disclosure groups were examined using chi-square tests of independence. 

For each experience variable, chi-square tests were conducted on all disclosure groups combined

(Pearson chi-square) and for each YSP treatment and corresponding control group combination

(Fisher exact tests). In addition, two-tailed t-tests of the differences in the means of treatment

and control group combinations were conducted for the continuous variables—the number of

previous mortgage transactions and the number of lenders and brokers contacted. The chi-square

and t-test p-values are presented in Table 3.2.

Few significant differences were found across the disclosure groups. Of the 37 chi-square

and t-tests conducted, only two were significant at the 5 percent level and two others at the 10

percent level. The multivariate analysis noted in the discussion of the demographic

characteristics also was used as a further check of the possible effect that differences in prior

mortgage experience across disclosure groups may have on the results of the cost comparison and

loan choice questions. As with the demographic characteristics, the analysis found that

experience variables did not have a confounding effect that distorted the treatment and control

group comparisons. This analysis is discussed in more detail in the next two sections.

3.2 Cost Comparison Tests

The cost comparison tests find that the proportion of respondents who correctly identified

the less expensive loan was significantly lower in the groups with YSP disclosures than in the

control groups without YSP disclosures. These results are presented in Table 3.3.

Test with one loan less expensive than the other. In one of the cost comparison tests, one

loan was less expensive than the other. As described in the Methodology section, above, the less

expensive loan was considered to be a “broker” loan and the more expensive loan a “direct

lender” loan. Following the asymmetric disclosure policy proposed by HUD, the “broker” loan

disclosed a YSP but the “direct lender” loan did not.

Approximately 90 percent of the respondents in the two control groups correctly

identified the less expensive loan. In contrast, only 63 to 72 percent of the respondents in the

three YSP disclosure groups correctly identified the less expensive loan. The accuracy rate was

71 percent in the original HUD proposal group, 72 percent in the revised prototype group, and 63

percent in the FTC language group. As noted below in this section, the differences between the

three YSP groups were not statistically significant.
Results

31 The p-values from the Fisher exact chi-square tests of independence and the two-tailed

t-tests of the difference in the proportion of correct responses equaled, respectively, 0.385 and

0.878 for the comparison between the original proposal and the revised prototype, 0.289 and

0.203 for the comparison between the original proposal and the FTC staff version, and 0.281 and

0.154 for the comparison between the revised prototype and the FTC staff version.

32 The p-values from the Fisher exact chi-square test of independence and the two-tailed

t-test of the difference in the proportion of correct responses equaled, respectively, 1.000 and

0.837.

25

Only 10 percent of the respondents in the control groups failed to identify the less

expensive loan correctly. Three to four percent said that the more expensive loan was less

expensive, 6 to 7 percent said that both loans cost the same, and 1 percent in one of the groups

said that they did not know. In contrast, 28 to 38 percent of the respondents in the three YSP

disclosure groups failed to identify the less expensive loan—29 percent in the original HUD

proposal group, 28 percent in the revised prototype group, and 38 percent in the FTC language

group. Across these three groups, 17 to 25 percent of the respondents said incorrectly that the

more expensive loan was less expensive, 5 to 10 percent said the both loans cost the same, and 1

to 5 percent said they did not know which loan was less expensive.

The differences between the treatment groups with YSP disclosures and the control

groups without YSP disclosures were statistically significant at a very high level. The

distribution of responses in each of the three YSP treatment groups was compared to the

distribution of responses in the corresponding control group using Fisher exact chi-square tests of

independence. As shown by the p-values presented in Table 3.3, the differences were highly

significant in all three comparisons. In another test of significance, the proportion of respondents

who correctly identified the less expensive loan in each of the three YSP treatment groups was

compared to the proportion in the corresponding control group using two-tailed t-tests. These

differences also were highly significant (see Table 3.3). 

The differences between the three YSP disclosure groups were not statistically

significant, either in chi-square tests or t-tests.31 This indicates that none of the YSP disclosures

performed significantly better than the others. Similarly, the difference between the two control

groups was not statistically significant.32

Test with both loans costing the same. The impact of the YSP disclosures was even

larger in the test in which both loans cost the same. As in the test where one loan was less

expensive than the other, one loan was considered to be a “broker” loan and the other a “direct

lender” loan. Also as in the other test, the “broker” loan disclosed a YSP but the “direct lender”

loan did not, following the asymmetric disclosure policy proposed by HUD. Here, however, all

loan and settlement costs payable by the borrower were the same in both loans.
Mortgage Broker Compensation Disclosures

26

The proportion of respondents recognizing correctly that both loans cost the same was 95

and 99 percent in the two control groups but only 49, 53, and 57 percent in the three YSP

disclosure groups. Only 1 percent of the respondents in one of the control groups and 5 percent

in the other incorrectly indicated that one of the two loans cost less. In the YSP disclosure

groups, 41 to 50 percent incorrectly indicated that one of the loans cost less and 2 to 6 percent

said that they did not know. Respondents exposed to the originally proposed version of the YSP

disclosure were most likely to give incorrect responses, but as noted in more detail below, the

differences between the three YSP disclosure groups were not statistically significant.

The small percentage of respondents in the control groups who gave incorrect responses

were not biased for or against either loan. In one control group, 1 percent of the respondents said

that the broker loan was less expensive and none said the direct lender loan was less expensive. 

In the other control group, 2 percent said that the broker loan was less expensive and 3 percent

said the lender loan was less expensive. 

In sharp contrast, respondents exposed to the YSP disclosures were much more likely to

believe that the “broker” loan was more expensive than the “lender” loan. In the group shown

the originally proposed version of the YSP disclosure, 45 percent of the respondents believed that

the “direct lender” loan was less expensive and only 5 percent believed the “broker” loan was

less expensive. This implies that 90 percent of the respondents who believed incorrectly that one

loan was less expensive believed it was the direct lender loan rather than the broker loan.

The results were similar in the disclosure groups shown the other two versions of the YSP

disclosure. In these groups, 30 to 34 percent of the respondents believed that the direct lender

loan was less expensive and 8 to 11 percent believed it was the broker loan. This implies that 74

to 81 percent of the respondents who believed incorrectly that one loan was less expensive

believed it was the direct lender loan rather than the broker loan.

As in the test in which one loan was less expensive than the other, the differences

between the treatment groups with YSP disclosures and the control groups without YSP

disclosures were statistically significant. The distribution of responses in each of the three YSP

treatment groups was compared to the distribution of responses in the corresponding control

group using Fisher exact chi-square tests of independence. Also, the proportion of respondents

who correctly identified that both loans cost the same in each of the three YSP treatment groups

was compared to the proportion in the corresponding control group using two-tailed t-tests. As

shown by the p-values presented in Table 3.3, all of the differences were highly significant.

The differences across the three YSP disclosure groups were not statistically significant in

either the chi-square tests or the t-tests, although one difference was marginally significant at
Results

33 The p-values from the Fisher exact chi-square tests of independence and the two-tailed

t-tests of the difference in the proportion of correct responses equaled, respectively, 0.061 and

0.488 for the comparison between the original proposal and the revised prototype, 0.396 and

0.240 for the comparison between the original proposal and the FTC staff version, and 0.438 and

0.632 for the comparison between the revised prototype and the FTC staff version.

34 The p-values from the Fisher exact chi-square test of independence and the two-tailed

t-test of the difference in the proportion of correct responses equaled, respectively, 0.150 and

0.096. The marginally significant result in the t-test reflects the difference between the 99

percent accuracy rate in the original proposal group and the 95 percent accuracy rate in the

revised prototype group.

35 The difference in the proportion of correct responses between the original proposal

and the revised prototype groups was not statistically significant (p-value equals 0.488), but the

difference in the proportion of incorrect direct lender responses was significant at about the 3

percent level (p-value equals 0.031). A t-test of the difference between the two groups in the

difference between the percentage of broker and lender responses also is significant (p-value

equals 0.016).

27

about the 6 percent level.33 The difference between the two control groups also was not

statistically significant.34 The marginally significant result was the difference between the

distribution of responses in the original proposal and the revised prototype groups. This appears

to be due to differences in the distribution of broker and direct lender responses among the

respondents who believed incorrectly that one loan was less expensive than the other, with

respondents in the original proposal group being more likely to believe that the direct lender loan

rather than the broker loan was less expensive. Although none of the versions of the YSP

disclosure performed significantly better than the others in terms of the proportion of respondents

correctly recognizing that both loans cost the same, and respondents in all of these groups

believed disproportionately that the direct lender loan was less expensive than the broker loan,

the results were significantly more disproportionate in the original proposal group than in the

revised prototype group.35 

Multivariate analysis. The differences between the treatment and control groups in the

proportion of respondents correctly identifying the less expensive loan (or correctly recognizing

that both loans cost the same) were not attributable to differences in the demographic

composition or prior mortgage experience of the groups. This was confirmed by multivariate

analysis that controlled for the possible effect of these factors. The multivariate analysis was

conducted with a logit model that estimated the probability that a respondent correctly identified

the less expensive loan. Several alternative specifications of the model were tested. The effect

of the YSP disclosure was highly significant in all of the estimates. Moreover, the effect of the

disclosure was consistently larger than in the differences presented earlier that did not control for
Mortgage Broker Compensation Disclosures

36 The differences between treatment and control groups in the proportion of respondents

who chose the more expensive loan also were highly significant but are not reported in the table. 

The p-values for the differences between control and treatment groups were less than 0.001 for

the original proposal and the FTC staff version and 0.002 for the revised prototype.

28

the demographic and experience characteristics. This confirms that the adverse effect of the YSP

disclosures on respondent cost comparisons that was found in the descriptive results was not due

to confounding factors, and indicates that, if anything, the descriptive results may understate the

size of the effect.

3.3 Loan Choice Tests

Following each cost comparison test, respondents were asked which of the two loans they

would choose if they were shopping for a mortgage. The responses indicate that YSP disclosures

have a significant effect on loan choice, leading a significant proportion of respondents to choose

the more expensive loan when the cost of the two loans differ, and leading respondents to

disproportionately choose the direct lender loan when both loans cost the same. The results of

the loan choice tests are presented in Table 3.4.

Test with one loan less expensive than the other. Respondent loan choice closely

mirrored the cost comparison results in the test in which one loan was less expensive than the

other. Respondents in the YSP disclosure groups were less likely to choose the less expensive

loan than were respondents in the control groups. In the two control groups, 85 percent (revised

prototype) to 94 percent (original proposal) of the respondents chose the less expensive loan. In

contrast, only 60 percent (FTC staff version), 65 percent (original proposal), and 70 percent

(revised prototype) of the respondents in the three YSP disclosure groups chose the less

expensive loan.

Only 3 percent of the respondents in one of the control groups (revised prototype) and

none in the other (original proposal) mistakenly chose the more expensive loan. In contrast, 16

percent (revised prototype), 25 percent (original proposal), and 27 percent (FTC staff version) of

the respondents in the three YSP disclosure groups chose the more expensive loan. Other

respondents said either that they would choose either loan, that they would choose neither loan,

or that they did not know.

As in the cost comparison tests, the statistical significance of the differences between the

treatment groups with YSP disclosures and the control groups without YSP disclosures were

tested with chi-square and t-tests. As shown by the p-values presented in Table 3.4, all of the

differences were highly significant.36
Results

37 The p-values from the Fisher exact chi-square tests of independence and the two-tailed

t-tests of the difference in the proportion of correct responses equaled, respectively, 0.026 and

0.460 for the comparison between the original proposal and the revised prototype, 0.216 and

0.422 for the comparison between the original proposal and the FTC staff version, and 0.341 and

0.123 for the comparison between the revised prototype and the FTC staff version.

38 In the revised prototype group, the proportion of respondents either choosing the more

expensive loan or saying that they would choose neither loan was lower than in the original

proposal group, and the proportion saying that both loans cost the same or that they did not know

was higher.

39 The p-values equal 0.046 for the former comparison and 0.085 for the latter.

40 The p-values from a Fisher exact chi-square test of independence and a two-tailed ttest of the difference in the proportion of correct responses equaled, respectively, 0.219 and

0.036.

29

The differences between the three YSP disclosures also were examined. There were no

significant differences in the proportion of respondents choosing the less expensive loan, and

only one significant difference (between the original proposal and the revised prototype groups)

in the distributions of the responses.37 The latter did not reflect a significant difference in the

proportion of respondents choosing the less expensive loan, but in the distributions of the other,

incorrect, responses.38 Similarly, t-tests of the difference in the proportion of respondents

incorrectly choosing the more expensive loan indicate a significant difference between the

revised prototype and FTC staff versions, and a marginally significant difference between the

revised prototype and original HUD versions.39

The difference in the distributions of the two control groups was not statistically

significant, but the difference in the proportion of respondents choosing the less expensive loan

was significant at about the 4 percent level.40 The latter reflected the difference between the 94

and 85 percent figures in the original proposal and the revised prototype, respectively.

Test with both loans costing the same. In the loan choice test in which one loan was less

expensive than the other, a respondent choosing the more expensive loan could be considered to

have made a wrong choice. In the test in which both loans cost the same, however, none of the

responses can be considered right or wrong because a consumer would be equally well off with

either loan. Thus, choices of the broker loan, direct lender loan, either, or neither are all equally

valid.

Although all choices in this test are valid, one would expect that respondents choosing

one of the two loans would choose randomly between the broker and lender loan because both
Mortgage Broker Compensation Disclosures

30

loans cost the same and neither was identified to the respondents as a broker or lender loan. 

Random selection between the two loans should result in the proportions of broker and direct

lender responses being approximately equal.

In the two control groups, most respondents—83 percent in the original proposal control

group and 78 percent in the revised prototype control—did not choose one of the two loans but

instead said that they would choose either one. These respondents presumably recognized that

both loans cost the same. Only 4 percent of the respondents in the original proposal group and

14 percent in the revised prototype group chose one of the two loans. The respondents choosing

one of the two loans did not exhibit a bias in favor or against either loan. In the original proposal

control group, 1 percent chose the broker loan and 3 percent the direct lender loan. In the revised

prototype control group, 7 percent chose the broker loan and 7 percent the direct lender loan.

The pattern of responses was very different in the three YSP disclosure groups. Over 60

percent of the respondents in each group chose one of the two loans, and those choosing a loan

disproportionately chose the direct lender loan rather than the broker loan. In the original

proposal group, 57 percent of the respondents chose the direct lender loan and only 5 percent

chose the broker loan, a difference of 52 percentage points. In the other two YSP groups, 46 to

48 percent of the respondents chose the direct lender loan and only 13 to 17 percent chose the

broker loan, differences of 29 and 36 percentage points. Of the respondents choosing one of the

two loans, 92 percent of the respondents in the original proposal group chose the direct lender

loan, as did 73 percent in the revised prototype group and 79 percent in the FTC staff version

group. 

As in the other tests presented above, the differences in the distribution of responses

between each of the three YSP treatment groups and the corresponding control group were

examined with chi-square tests of independence. As shown by the p-values presented in Table

3.4, all of these differences were highly significant. 

Unlike in the other tests, t-tests of the differences across groups in the proportion of

respondents choosing the correct loan were not done because none of the loan choices could be

considered correct or incorrect. Instead, t-tests were used to test whether in each disclosure

group there was a significant difference between the proportion of respondents choosing the

direct lender loan and the proportion choosing the broker loan, and whether these differences

varied significantly across the disclosure groups. These tests indicate that the difference between

the proportions of direct lender and broker responses were highly significant in each of the three

YSP disclosure groups (p-values all less than 0.001) but not significant in either of the two

control groups (p-values equal 0.317 and 1.000). 

The differences were significantly larger in each YSP disclosure group than in the

corresponding control group (p-values all less than 0.001). The difference also was significantly
Results

41 The chi-square and t-test p-values equaled, respectively, 0.072 and 0.013 for the

comparison between the original proposal and the revised prototype groups, 0.227 and 0.061 for

the comparison between the original proposal and the FTC staff version, 0.761 and 0.516 for the

comparison between the revised prototype and the FTC staff version, and 0.113 and 0.640 for the

comparison between the two control groups.

31

larger in the originally proposed version of the YSP disclosure than in the revised prototype

version (and the difference between the original proposal and FTC staff versions was marginally

significant).41 This indicates that although all versions of the YSP disclosure led to a significant

bias in favor of the direct lender loan and against the broker loan, the bias is significantly larger

in the originally proposed version of the disclosure than in the revised prototype.

Multivariate analysis. The differences in respondent loan choices in the treatment and

control groups were not attributable to differences in the demographic composition or prior

mortgage experience of the groups. As in the cost comparison tests, this was confirmed by

multivariate analysis that controlled for the possible effect of these factors. The multivariate

analysis was conducted with logit and multinomial logit models using several alternative

specifications. The effect of the YSP disclosure was highly significant in all of the estimates. 

Moreover, the effect of the disclosure was typically larger than the differences presented above

that did not control for the demographic and experience characteristics.

3.4 Certainty of the Cost Comparison

Respondents were asked how certain they were of their identification of the less

expensive loan in the cost comparison tests. As shown in Table 3.5, the YSP disclosures

significantly reduced the level of certainty in each test.

The vast majority of respondents in all of the disclosure groups said they were either

“very certain” or “somewhat certain” of their response. In the two control groups without YSP

disclosures, 91 to 94 percent of the respondents said they were either “very” or “somewhat

certain” in the test in which one loan was less expensive than the other, as did 97 to 99 percent in

the test in which both loans cost the same. Similarly, 85 to 88 percent of the respondents in the

three YSP disclosure groups said they were “very” or “somewhat certain” in both tests. 

Although all groups were generally certain of their response, there was a significant

difference in the degree of certainty between the control and treatment groups. In the control

groups, 63 to 72 percent of the respondents said they were “very certain” in the test in which one

loan was less expensive and 81 to 84 percent said they were “very certain” in the test in which

both loans cost the same. In contrast, only 37 to 43 percent of the YSP treatment groups said

they were “very certain” in the test in which one loan was less expensive and only 40 to 48
Mortgage Broker Compensation Disclosures

42 Across the three YSP disclosure groups, 20 percent of the “very certain” respondents

said that the more expensive loan was less expensive, 4 percent said that the two loans cost the

same, and 3 percent said that they did not know. The results varied somewhat across the three

groups but the differences were not statistically significant.

43 Across the three YSP disclosure groups, 30 percent of the "very certain" respondents

said that the direct lender loan was less expensive, 4 percent said that the broker loan was less

expensive, and 4 percent said that they did not know. The results varied by only a few

percentage points across the three groups.

32

percent in the test in which both loans cost the same. As shown by the p-values presented in

Table 3.5, the differences in the distribution of responses between each YSP treatment group and

the corresponding control group are statistically significant.

Although some respondents in the YSP disclosure groups were “very certain” of their

response, even these respondents had a significantly lower accuracy rate in the cost comparison

tests than did respondents in the control groups. In the test in which one loan was less expensive

than the other, 73 percent of the “very certain” respondents in the three YSP disclosure groups

identified the less expensive loan correctly, compared to 90 percent of all respondents in the two

control groups.42 Similarly, in the test in which both loans cost the same, 61 percent of the “very

certain” respondents in the YSP disclosure groups recognized that both loans cost the same,

compared to 97 percent of respondents in the two control groups.

43 The difference in each test is

highly significant (t-test p-values less than 0.001). The results indicate that a significant

proportion of even the “very certain” respondents were confused by the YSP disclosures.

3.5 Reasons for the Cost Comparison and Loan Choice Responses

Respondents were asked to explain the reason for their response after each cost

comparison and loan choice question. The reasons generally reinforced the responses to the loan

cost and choice questions. Most respondents who identified a particular loan as less expensive,

or who said they would choose the loan if they were shopping for a mortgage, said they did so

because the loan, or some feature of the loan, cost less. Different respondents cited a wide

variety of loan features as costing less, including the origination charge, adjusted origination

charge, service charge, settlement charge, settlement costs, unspecified charges, and (always

incorrectly) the interest rate or monthly payment. Similarly, most respondents who said that both

loans cost the same or that they would choose either loan if they were shopping for a mortgage

said they did so because the loans, or less commonly, some feature of the loans, cost the same.

Respondents in the YSP disclosure groups who incorrectly identified the more expensive

loan as less expensive or who incorrectly identified the more expensive loan as their loan choice

if they were shopping for a mortgage followed the same pattern. These respondents most
Results

44 A small proportion of respondents, particularly in the loan choice test in which both

loans cost the same, said that they chose the loan without the YSP disclosure simply because it

was “less confusing.”

45 The correctness of the responses were classified and coded by the authors. The

responses were initially classified by one of the authors and then reviewed by the other. Any

discrepancies in the initial classifications were reviewed jointly for a final determination.

46 Lower up-front costs could be expressed in a variety of ways, including “lower

settlement costs,” “lower origination costs,” “lower service charge,” “get a credit,” or “get a

rebate.”

47 A response also was considered partially correct if it mentioned that the lower costs

were related to the interest rate but did not specifically mention that the rate was higher.

33

commonly said they did so because the loan, or some feature of the loan, cost less, and different

respondents cited a wide variety of loan features as costing less. This appears to indicate that the

YSP disclosures distorted these respondents’ perceptions of the relative loan costs rather than

simply confusing respondents and resulting in random guesses.44 Only a small proportion of

these respondents cited something from the YSP disclosure itself, such as the “credit,” “rebate,”

or “adjustment.” This may suggest that the confusion and mistaken loan choices are more likely

to arise from the total compensation (gross origination charge) figure rather than the YSP (lender

payment to the borrower) figure, but such a conclusion would be somewhat speculative because

many respondents simply made general statements, such as “loan costs less,” “lower charges,” or

“better deal,” that are not facially inconsistent with a focus on the YSP.

3.6 Understanding of the YSP Disclosure

Following the second series of cost comparison and loan choice questions, interviewers

pointed to and read the YSP disclosure and asked respondents what the disclosure meant to them. 

Interviewers probed for additional detail until unproductive and recorded the verbatim responses. 

The verbatim responses were examined to assess the degree to which respondents understood the

disclosure.45 

A response was considered correct if the respondent said that the loan had lower up-front

costs in exchange for a higher interest rate (and did not make any additional incorrect

statement).46 A response was considered partially correct if it mentioned either lower up-front

costs or a higher interest rate, but not both.47 Responses were considered wrong if they made any

incorrect statement, even if other parts of the statement were correct. Responses were considered
Mortgage Broker Compensation Disclosures

48 Statements that were essentially irrelevant also were categorized as ambiguous.

34

ambiguous if the statement was not clearly correct or incorrect.48 A small number of responses

were classified as “felt cheated” because the response focused on the respondent’s subjective

(negative) reaction to the disclosure, rather than its meaning. The verbatim responses and the

classifications assigned by the authors are presented in Appendix E.

Using an open-ended question to assess understanding of the disclosure is inherently

inexact. Some respondents who gave an apparently correct response may be simply repeating the

disclosure, paraphrasing it in slightly different words, but understanding it little. Conversely,

respondents who gave only a partially correct or ambiguous response may have had a correct

understanding but just did not express it fully or clearly in their answer. There also were

difficulties in interpreting and classifying the responses, and the resulting classifications are

somewhat rough. There often was uncertainty, for example, over whether respondents who

mentioned that they would receive lower up-front costs for a higher interest rate meant that the

lower costs were associated with the loan in the disclosure form or with another, alternative loan

with a higher rate. Some responses indicated consumer confusion about this point, but others

were often unclear.

The results of the classification are presented in Table 3.6. As implied above, the results

should be interpreted as rough approximations that may be an inexact measure of consumer

understanding. Nonetheless, the results indicate that 25 percent of the 310 respondents in the

three YSP disclosure groups had a correct understanding of the disclosure, 20 percent had a

partially correct understanding, 25 percent an incorrect understanding, 13 percent gave an

ambiguous response, and 16 percent said that they did not know.

Table 3.7 examines the relationship between respondent understanding of the YSP

disclosure and the number of cost comparison questions answered correctly earlier in the

experiment. The table shows the proportion of respondents in each understanding category that

answered zero, one, and two of the cost comparison questions correctly. For comparison

purposes, the same proportions also are presented for respondents in the control groups, who

were not exposed to a YSP disclosure.

As shown in Table 3.7, there were differences in accuracy rates across respondents with

different levels of understanding, and respondents with a more correct understanding were more

likely to have a higher accuracy rate, but the differences were not that large. Fifty-five percent of

the respondents who were classified as correctly understanding the YSP disclosure answered

both cost comparison questions correctly, as did 45 percent of those classified as partially

understanding the disclosure, 36 percent of those who had an ambiguous or wrong
Results

49 Only 17 percent of the respondents who said that the YSP disclosure meant they were

“being cheated” answered both cost comparison questions correctly, but this percentage is based

on only six respondents.

50 The differences in the distribution of the number of cost questions answered correctly

is not significant across the YSP understanding groups (p-value equals 0.202) but is significant if

the correct understanding group is compared to all other understanding groups combined (p-value

equals 0.030). Adding the distribution of responses in the control groups makes both

comparisons highly significant (p-values less than 0.001).

35

understanding, and 43 percent of those who said they did not know.49 In contrast to all of these

results, 88 percent of the respondents in the control groups answered both cost questions

correctly. These differences are illustrated graphically in Figure 3.1.50

Ultimately, it is difficult to measure consumer understanding of the YSP disclosures

through an open-ended question asking “what does this mean.” There is simply too much

ambiguity in interpreting the responses and assessing what they imply about respondent

understanding of the disclosure. The inexactness of this qualitative measure is illustrated by the

proportions of respondents answering both cost comparison questions correctly. The difference

between respondents categorized as having a correct understanding and respondents categorized

as having a wrong understanding is 19 percentage points, but the difference between respondents

having a correct understanding and respondents in the control groups that did not see a YSP

disclosure is 33 percentage points. The correct understanding group is much closer to the wrong

understanding group than it is to the control groups, suggesting that the differences in

understanding are not as large as implied by the classifications and that a significant proportion

of “correct” respondents are actually confused by the disclosure.

A better measure of respondent understanding of the YSP disclosures is provided by the

results of the cost comparison and loan choice experiments. These results provide a clear-cut,

quantitative measure of respondent use of the disclosures that can be compared across treatment

and control groups to assess the impact of the disclosures.
Mortgage Broker Compensation Disclosures

36

Table 3.1 Demographic Characteristics

Percentage of respondents, by disclosure group

Original proposal Revised prototype 

Demographic

characteristic

 (N)

(1)

YSP

disclosure

omitted

(104)

(2)

YSP

disclosure

included

(103)

(3)

YSP

disclosure

omitted

(103)

(4)

YSP

disclosure

included

(103)

(5)

FTC YSP

disclosure

substituted

(104)

Total

(517)

Education

Less than high school 1.0 1.0 0.0 3.9 0.0 1.2

High school graduate 29.8 27.2 30.1 23.3 28.9 27.9

Technical / trade school 1.9 1.9 0.0 2.9 1.0 1.6

Some college 35.6 32.0 28.2 24.3 33.7 30.8

College graduate 26.0 31.1 26.2 34.0 27.9 29.0

Graduate school or more 5.8 6.8 15.5 11.7 8.7 9.7

 chi2 p-values: (all groups) 0.217; (cols 1,2) 0.970; (cols 3,4) 0.086; (cols 3,5) 0.145

Age

18 to 24 years old 5.8 8.7 12.6 4.9 5.8 7.5

25 to 34 years old 20.2 22.3 17.5 23.3 23.1 21.3

35 to 44 years old 38.5 39.8 34.0 38.8 26.9 35.6

45 to 54 years old 24.0 16.5 22.3 16.5 26.0 21.1

55 to 64 years old 10.6 3.9 9.7 13.6 12.5 10.1

65 or more years old 1.0 8.7 3.9 2.9 5.8 4.5

 chi2 p-values: (all groups) 0.115; (cols 1,2) 0.034*; (cols 3,4) 0.264; (cols 3,5) 0.359

Gender

Male 54.8 50.5 51.5 47.6 51.9 51.3

Female 45.2 49.5 48.5 52.4 48.1 48.7

 chi2 p-values: (all groups) 0.890; (cols 1,2) 0.579; (cols 3,4) 0.676; (cols 3,5) 0.579

(Table continued on next page.)
Results

37

Table 3.1 Demographic Characteristics (continued)

Percentage of respondents, by disclosure group

Original proposal Revised prototype 

Demographic

characteristic

 (N)

(1)

YSP

disclosure

omitted

(104)

(2)

YSP

disclosure

included

(103)

(3)

YSP

disclosure

omitted

(103)

(4)

YSP

disclosure

included

(103)

(5)

FTC YSP

disclosure

substituted

(104)

Total

(517)

Hispanic or Latino Origin

Yes 5.8 6.8 6.8 4.9 5.8 6.0

No 94.2 93.2 93.2 95.2 94.2 94.0

 chi2 p-values: (all groups) 0.974; (cols 1,2) 0.783; (cols 3,4) 0.768; (cols 3,5) 1.000

Race

White 82.7 83.5 79.6 84.5 82.7 82.6

Black or African

American

9.6 11.7 14.6 6.8 8.7 10.3

Hispanic (volunteered) 1.0 0.0 1.9 1.9 1.0 1.2

Asian 2.9 2.9 1.9 5.8 3.9 3.5

American Indian or

Alaska Native

0.0 0.0 0.0 0.0 1.9 0.4

Native Hawaiian or

Other Pacific Islander

1.0 0.0 1.0 0.0 0.0 0.4

No race given 2.9 1.9 1.0 1.0 1.9 1.7

 chi2 p-values: (all groups) 0.632; (cols 1,2) 0.964; (cols 3,4) 0.231; (cols 3,5) 0.751

Either Black/African American or Hispanic/Latino

Yes 15.4 17.5 21.4 11.7 13.5 15.9

No 84.6 82.5 78.6 88.4 86.5 84.1

 chi2 p-values: (all groups) 0.358; (cols 1,2) 0.711; (cols 3,4) 0.090; (cols 3,5) 0.834

(Table continued on next page.)
Mortgage Broker Compensation Disclosures

38

Table 3.1 Demographic Characteristics (continued)

Percentage of respondents, by disclosure group

Original proposal Revised prototype 

Demographic

characteristic

 (N)

(1)

YSP

disclosure

omitted

(104)

(2)

YSP

disclosure

included

(103)

(3)

YSP

disclosure

omitted

(103)

(4)

YSP

disclosure

included

(103)

(5)

FTC YSP

disclosure

substituted

(104)

Total

(517)

Income

Less than $25,000 8.7 2.9 4.9 2.9 2.9 4.5

$25,000 to $39,999 13.5 16.5 13.6 16.5 12.5 14.5

$40,000 to $49,999 19.2 18.5 13.6 15.5 12.5 15.9

$50,000 to $74,999 26.0 22.3 26.2 24.3 26.9 25.2

$75,000 to $99,999 14.4 17.5 17.5 19.4 17.3 17.2

$100,000 or more 4.8 14.6 17.5 11.7 18.3 13.4

Don’t know / Refused 13.5 7.8 6.8 9.7 9.6 9.5

 chi2 p-values: (all groups) 0.550; (cols 1,2) 0.105; (cols 3,4) 0.839; (cols 3,5) 0.846

Source: FTC Bureau of Economics Mortgage Broker Compensation Disclosure Study.

Notes: Chi-2 p-values are from tests of independence in the distribution of responses across disclosure groups. 

Tests on the whole table (indicated by “all groups”) are Pearson chi-2 tests. Tests on treatment and control group

pairs (indicated by the column numbers in parentheses) are Fisher exact tests. * indicates significant at the p<5%

level, ** indicates significant at the p<1% level.
Results

39

Table 3.2 Prior Mortgage Experience

Percentage of respondents, by disclosure group

Original proposal Revised prototype 

Experience characteristic

 (N)

(1)

YSP

disclosure

omitted

(104)

(2)

YSP

disclosure

included

(103)

(3)

YSP

disclosure

omitted

(103)

(4)

YSP

disclosure

included

(103)

(5)

FTC YSP

disclosure

substituted

(104)

Total

(517)

Total number of mortgage transactions

None 1.9 6.8 1.9 3.9 3.9 3.7

1 23.1 31.1 28.2 27.2 29.8 27.9

2 22.1 16.5 29.1 24.3 26.0 23.6

3 17.3 19.4 18.5 19.4 14.4 17.8

4 15.4 8.7 7.8 8.7 9.6 10.1

5 5.8 4.9 3.9 8.7 6.7 6.0

6 or more 10.6 9.7 9.7 7.8 7.7 9.1

Don’t know 3.9 2.9 1.0 0.0 1.9 1.9

Mean

Median

3.1

3.0

2.7

2.0

2.7

2.0

2.7

2.0

2.6

2.0

2.8

2.0

 chi2 p-values: (all groups) 0.747; (cols 1,2) 0.420; (cols 3,4) 0.779; (cols 3,5) 0.914

 t-test p-values: (cols 1,2) 0.238; (cols 3,4) 0.926; (cols 3,5) 0.796

Currently shopping for a mortgage

Yes 34.6 27.2 29.1 24.3 29.8 29.0

No 65.4 72.8 70.9 75.7 70.2 71.0

 chi2 p-values: (all groups) 0.573; (cols 1,2) 0.293; (cols 3,4) 0.529; (cols 3,5) 0.435

(Table continued on next page.)
Mortgage Broker Compensation Disclosures

40

Table 3.2 Prior Mortgage Experience (continued)

Percentage of respondents, by disclosure group

Original proposal Revised prototype 

Experience characteristic

 (N)

(1)

YSP

disclosure

omitted

(104)

(2)

YSP

disclosure

included

(103)

(3)

YSP

disclosure

omitted

(103)

(4)

YSP

disclosure

included

(103)

(5)

FTC YSP

disclosure

substituted

(104)

Total

(517)

Time since last mortgage transaction

Less than 3 months 17.3 15.5 11.7 15.5 8.7 13.7

3 months but less than 6 8.7 12.6 12.6 13.6 10.6 11.6

6 mths but less than 1 yr 14.4 11.7 12.6 11.7 22.1 14.5

1 year but less than 2 yr 23.1 25.2 29.1 13.6 14.4 21.1

2 yrs but less than 3 yrs 25.0 21.4 20.4 35.0 29.8 26.3

More than 3 years 8.7 6.8 11.7 6.8 9.6 8.7

Never had a mortgage 1.9 6.8 1.9 3.9 3.9 3.7

Don’t know / refused 1.0 0.0 0.0 0.0 1.0 0.4

 chi2 p-values: (all groups) 0.168; (cols 1,2) 0.613; (cols 3,4) 0.050*; (cols 3,5) 0.348

Primary household shopper and decision maker on mortgage

Respondent 51.0 51.5 46.6 47.6 50.0 49.3

Jointly with other(s) 49.0 48.5 53.4 52.4 50.0 50.7

 chi2 p-values: (all groups) 0.945; (cols 1,2) 1.000; (cols 3,4) 1.000; (cols 3,5) 0.782

(Table continued on next page.)
Results

41

Table 3.2 Prior Mortgage Experience (continued)

Percentage of respondents, by disclosure group

Original proposal Revised prototype 

Experience characteristic

(1)

YSP

disclosure

omitted

(2)

YSP

disclosure

included

(3)

YSP

disclosure

omitted

(4)

YSP

disclosure

included

(5)

FTC YSP

disclosure

substituted Total

Number of lenders or brokers contacted when shopping for last mortgage

(respondents with mortgage transaction in the previous three years)

(N) (92) (89) (89) (92) (89) (451)

1 25.0 23.6 28.1 30.4 34.8 28.4

2 16.3 25.8 33.7 25.0 15.7 23.3

3 37.0 29.2 20.2 28.3 25.8 28.2

4 16.3 5.6 7.9 5.4 9.0 8.9

5 3.3 5.6 3.4 3.3 9.0 4.9

6 or more 2.2 6.7 4.5 6.5 3.4 4.7

Don’t know 0.0 3.4 2.3 1.1 2.3 1.8

Mean

Median

2.8

3.0

2.8

2.0

3.0

2.0

2.5

2.0

2.5

2.0

2.7

2.0

 chi2 p-values: (all groups) 0.068; (cols 1,2) 0.038*; (cols 3,4) 0.651; (cols 3,5) 0.452

 t-test p-values: (cols 1,2) 0.978; (cols 3,4) 0.452; (cols 3,5) 0.930

Done prior business with company selected for last mortgage 

(respondents with mortgage transaction in the previous three years)

(N) (92) (89) (89) (92) (89) (451)

Yes 38.0 24.7 34.8 30.4 31.5 31.9

No 62.0 75.3 65.2 69.6 68.5 68.1

 chi2 p-values: (all groups) 0.385; (cols 1,2) 0.057; (cols 3,4) 0.634; (cols 3,5) 1.000

(Table continued on next page.)
Mortgage Broker Compensation Disclosures

42

Table 3.2 Prior Mortgage Experience (continued)

Percentage of respondents, by disclosure group

Original proposal Revised prototype 

Experience characteristic

(1)

YSP

disclosure

omitted

(2)

YSP

disclosure

included

(3)

YSP

disclosure

omitted

(4)

YSP

disclosure

included

(5)

FTC YSP

disclosure

substituted Total

Number of lenders or brokers contacted so far in shopping for current mortgage 

(respondents without a mortgage transaction in the previous three years but currently shopping)

(N) (12) (14) (14) (11) (15) (66)

0 16.7 0.0 0.0 9.1 6.7 6.1

1 8.3 14.3 21.4 9.1 33.3 18.2

2 41.7 42.9 35.7 45.5 26.7 37.9

3 8.3 7.1 28.6 18.2 6.7 13.6

4 0.0 14.3 14.3 18.2 6.7 10.6

5 16.7 7.1 0.0 0.0 0.0 4.6

6 0.0 0.0 0.0 0.0 6.7 1.5

Don’t know 8.3 14.3 0.0 0.0 13.3 7.6

Mean

Median

2.2

2.0

2.5

2.0

2.4

2.0

2.3

2.0

2.0

2.0

2.3

2.0

 chi2 p-values: (all groups) 0.520; (cols 1,2) 0.738; (cols 3,4) 0.811; (cols 3,5) 0.491

 t-test p-values: (cols 1,2) 0.607; (cols 3,4) 0.849; (cols 3,5) 0.643

Source: FTC Bureau of Economics Mortgage Broker Compensation Disclosure Study.

Notes: Chi-2 p-values are from tests of independence in the distribution of responses across disclosure groups. 

Tests on the whole table (indicated by “all groups”) are Pearson chi-2 tests. Tests on treatment and control group

pairs (indicated by the column numbers in parentheses) are Fisher exact tests. T-tests are two-tailed tests of the

difference in means between treatment and control group pairs (indicated by the column numbers in parentheses). 

* indicates significant at the p<5% level, ** indicates significant at the p<1% level.
Results

43

Table 3.3 Cost Comparison Tests

Percentage of respondents, by disclosure group

Original proposal Revised prototype 

Response

 (N)

(1)

YSP

disclosure

omitted

(104)

(2)

YSP

disclosure

included

(103)

(3)

YSP

disclosure

omitted

(103)

(4)

YSP

disclosure

included

(103)

(5)

FTC YSP

disclosure

substituted

(104)

Test with the broker loan less expensive

 Broker loan 89.4% 70.9% 90.3% 71.8% 62.5%

 Lender loan 2.9 23.3 3.9 16.5 25.0

 Both the same 6.7 4.9 5.8 9.7 7.7

 Don’t know 1.0 1.0 0.0 1.9 4.8

Test with both loans costing the same

 Broker loan 1.0 4.9 1.9 10.7 7.7

 Lender loan 0.0 44.7 2.9 30.1 33.7

 Both the same 99.0 48.5 95.1 53.4 56.7

 Don’t know 0.0 1.9 0.0 5.8 1.9

Source: FTC Bureau of Economics Mortgage Broker Compensation Disclosure Study.

Significance tests for the test with the broker loan less expensive:

chi2 p-values: <0.001 (all groups)**; <0.001** (cols.1,2); 0.002** (cols.3,4); <0.001** (cols.3,5)

t-test p-values: 0.001** (cols.1,2); 0.001** (cols.3,4); <0.001** (cols.3,5)

Significance tests for the test with both loans costing the same:

chi2 p-values: <0.001** (all groups); <0.001** (cols.1,2); <0.001** (cols.3,4); <0.001** (cols.3,5) 

t-test p-values: <0.001** (cols.1,2); <0.001** (cols.3,4); <0.001** (cols.3,5) 

Notes: Chi-2 p-values are from tests of independence in the distribution of responses across disclosure

groups. Tests on the whole table (indicated by “all groups”) are Pearson chi-2 tests. Tests on treatment and

control group pairs (indicated by the column numbers in parentheses) are Fisher exact tests. T-test p-values

are from two-tail tests of the difference in the proportions of respondents in control and treatment group

pairs (indicated by the column numbers in parentheses) correctly identifying the less expensive loan. 

* indicates significant at the p<5% level, ** indicates significant at the p<1% level. 
Mortgage Broker Compensation Disclosures

44

Table 3.4 Loan Choice Tests

Percent of respondents, by disclosure group

Original proposal Revised prototype

Response

 (N)

(1)

YSP

disclosure

omitted

(104)

(2)

YSP

disclosure

included

(103)

(3)

YSP

disclosure

omitted

(103)

(4)

YSP

disclosure

included

(103)

(5)

FTC YSP

disclosure

substituted

(104)

Test with the broker loan less expensive

 Broker loan 94.2% 65.0% 85.4% 69.9% 59.6%

 Lender loan 0.0 25.2 2.9 15.5 26.9

 Either, both the same 2.9 0.0 3.9 4.9 3.8

 Neither 1.0 5.8 2.9 1.9 2.9

 Don’t know 1.9 3.9 4.9 7.8 6.7

Test with both loans costing the same

 Broker loan 1.0 4.9 6.8 16.5 12.5

 Lender loan 2.9 57.3 6.8 45.6 48.1

 Either, both the same 82.7 27.2 77.7 25.2 29.8

 Neither 9.6 6.8 6.8 6.8 3.8

 Don’t know 3.8 3.9 1.9 5.8 5.8

 Difference between direct 

 lender and broker responses

1.9 52.4 0.0 29.1 35.6

Source: FTC Bureau of Economics Mortgage Broker Compensation Disclosure Study. 

 

Significance tests for the test with the broker loan less expensive:

chi2 p-values: <0.001 (all groups)**; <0.001** (cols.1,2); 0.014* (cols.3,4); <0.001** (cols.3,5)

t-test p-values: <0.001** (cols.1,2); 0.007** (cols.3,4); <0.001** (cols.3,5)

 Significance tests for the test with both loans costing the same:

chi2 p-values: <0.001** (all groups); <0.001** (cols.1,2); <0.001** (cols.3,4); <0.001** (cols.3,5) 

t-test p-values: <0.001** (cols.1,2); <0.001** (cols.3,4); <0.001** (cols.3,5)

 Notes: Chi-2 p-values are from tests of independence in the distribution of responses across disclosure

groups. Tests on the whole table (indicated by “all groups”) are Pearson chi-2 tests. Tests on treatment and

control group pairs (indicated by the column numbers in parentheses) are Fisher exact tests. For the test

with the broker loan less expensive, t-test p-values are from two-tail tests of the difference in the

proportions of respondents in control and treatment group pairs (indicated by the column numbers in

parentheses) correctly identifying the less expensive loan. In the test with both loans costing the same, the ttests are from two-tailed tests of the difference between control and treatment groups in the difference

between direct lender and broker responses. * indicates significant at the p<5% level, ** indicates

significant at the p<1% level. 
Results

45

Table 3.5 Certainty of Cost Comparison

Percent of respondents, by disclosure group

Original proposal Revised prototype 

Response

 (N)

(1)

YSP

disclosure

omitted

(104)

(2)

YSP

disclosure

included

(103)

(3)

YSP

disclosure

omitted

(103)

(4)

YSP

disclosure

included

(103)

(5)

FTC YSP

disclosure

substituted

(104)

Test with the broker loan less expensive

 Very certain 72.1% 42.7% 63.1% 36.9% 43.3%

 Somewhat certain 22.1 43.7 28.2 49.5 43.3

 Neither certain nor uncertain 2.9 5.8 3.9 6.8 6.7

 Somewhat uncertain 1.0 6.8 4.9 6.8 2.9

 Very uncertain 0.0 1.0 0.0 0.0 3.9

 Don’t know 1.9 0.0 0.0 0.0 0.0

Test with both loans costing the same

 Very certain 83.7 39.8 80.6 42.7 48.1

 Somewhat certain 15.4 46.6 16.5 42.7 39.4

 Neither certain nor uncertain 1.0 7.8 2.9 8.7 8.7

 Somewhat uncertain 0.0 4.9 0.0 4.9 1.9

 Very uncertain 0.0 1.0 0.0 1.0 1.0

 Don’t know 0.0 0.0 0.0 0.0 1.0

Source: FTC Bureau of Economics Mortgage Broker Compensation Disclosure Study.

 

Significance tests for the test with the broker loan less expensive:

chi2 p-values: <0.001 (all groups)**; <0.001 (cols 1,2)**; 0.002 (cols 3,4)**; 0.011 (cols 3,5)*

Significance tests for the test with both loans costing the same:

chi2 p-values: <0.001 (all groups)**; <0.001 (cols 1,2)**; <0.001 (cols 3,4)**; <0.001 (cols 3,5)**

Notes: Chi-2 p-values are from tests of independence in the distribution of responses across disclosure

groups. Tests on the whole table (indicated by “all groups”) are Pearson chi-2 tests. Tests on treatment and

control group pairs (indicated by the column numbers in parentheses) are Fisher exact tests. 

* indicates significant at the p<5% level, ** indicates significant at the p<1% level.
Mortgage Broker Compensation Disclosures

46

Table 3.6 Understanding of YSP Disclosure

Respondent understanding of YSP disclosure 

 (N)

Percentage of YSP

group respondents

(310)

Correct 24.5%

Partially correct 20.0

Ambiguous 12.6

Wrong 25.2

Did not know 15.8

Felt cheated 1.9

Source: FTC Bureau of Economics Mortgage Broker Compensation

Disclosure Study.
Results

47

Table 3.7 Number of Cost Comparison Questions Answered Correctly, by

Understanding of the YSP Disclosure

Percentage of respondents answering

each number of cost comparison

questions correctly

Disclosure group,

Understanding of YSP disclosure N 0 1 2

Control groups (no YSP disclosure) 207 1.5 10.1 88.4

YSP disclosure groups 310 21.9 34.8 43.2

YSP disclosure group respondents by understanding of the YSP disclosure

Correct 76 21.1 23.7 55.3

Partially correct 62 17.7 37.1 45.2

Ambiguous 39 18.0 46.2 35.9

Wrong 78 25.6 38.5 35.9

Did not know 49 26.5 30.6 42.9

Felt cheated 6 16.7 66.7 16.7

Source: FTC Bureau of Economics Mortgage Broker Compensation Disclosure Study.

Notes: The p-value from a Pearson chi-2 test of independence is 0.202 when only treatment group

respondents are included and less than 0.001 when control group respondents also are included. 

The latter is significant at the p<1% level.
Mortgage Broker Compensation Disclosures

48

 Figure 3.1
49

4

ANALYSIS

This study finds that broker compensation disclosures are likely to have a significant

adverse effect on consumers and competition in the mortgage loan market. The disclosures are

intended to help consumers understand the cost of mortgage loans, increase price competition,

and lower costs to consumers. Instead, the disclosures are likely to lead a significant proportion

of consumers to choose more expensive loans by mistake, reduce competition for mortgage

originations, and increase costs for all mortgage customers.

4.1 Impact of YSP Disclosures on Consumers

In the experiment conducted in this study, recent mortgage customers were shown cost

information about two hypothetical mortgage loans and asked to identify which loan was less

expensive and which loan they would choose if they were shopping for a mortgage. Adding YSP

disclosures to the cost information reduced significantly the proportion of respondents correctly

identifying the less expensive loan and the proportion stating they would choose that loan if they

were shopping for a mortgage. Three different versions of the YSP disclosure were tested. All

led to significant consumer confusion, inaccurate cost comparisons, and more expensive loan

choices.

The impact of the YSP disclosures was large and statistically significant. When the

original HUD proposal and revised prototype versions of the YSP disclosure were added to the

cost information for the less expensive loan, the proportion of respondents correctly identifying

that loan as less expensive fell by 18.5 percentage points, from roughly 90 percent of respondents

to little more than 70 percent (and the effect was even larger in the FTC staff version). The

proportion of respondents stating they would choose that loan if they were shopping for a

mortgage also fell, by 29 percentage points with the originally-proposed version of the YSP

disclosure and 15.5 percentage points with the revised prototype. The inaccurate cost

comparisons and mistaken loan choices are likely to result in a significant increase in mortgage

costs for many consumers. 

4.2 Impact of YSP Disclosures on Competition

The study also finds that YSP disclosures create a substantial consumer bias against loans

disclosing a YSP. The bias will place HUD-defined mortgage brokers at a competitive

disadvantage because the asymmetric disclosure policy proposed by HUD would require the

disclosures only for these brokers, not direct lenders or other originators.
Mortgage Broker Compensation Disclosures

50

The magnitude of the bias was quite large and highly significant. When respondents were

shown two loans that had identical costs and the cost information did not include YSP

disclosures, 95 to 99 percent of the respondents correctly recognized that both loans cost the

same. When a YSP disclosure was included in the cost information for one of the loans, roughly

40 to 50 percent of the respondents, depending on the version tested, indicated incorrectly that

one of the loans was less expensive. The overwhelming majority of these respondents—90

percent with the originally-proposed version of the YSP disclosure and 74 percent with the

revised prototype—believed that the loan disclosing a YSP was more expensive. A similar bias

was found when respondents were asked which loan they would choose if they were shopping for

a mortgage. 

The findings indicate that the asymmetric disclosure policy will cause a large proportion

of consumers to view identically priced loans from brokers and lenders very differently. 

Consumers will view a broker loan that discloses a YSP as more expensive than a direct lender

loan that does not, even when the broker loan costs the same or less than the direct lender loan. 

The bias in consumer perception of loan costs arising from the asymmetric disclosure

policy will give a competitive advantage to direct lenders and place brokers at a disadvantage. If

the competitive disadvantage makes it more difficult for brokers to compete against direct

lenders, the result may be fewer brokers in the market and less competition. The reduction in

competition from brokers may lead to higher mortgage prices if brokers are the relatively more

efficient, lower cost producers of mortgage originations, as some industry analysts have

suggested (Olson 2002). In the short run, consumers who mistakenly choose a more expensive

loan will be harmed by the YSP disclosures, but in the long run, all mortgage customers may be

harmed if the competitive disadvantage imposed on the broker sector leads to higher prices

throughout the market.

4.3 Projected Impact of YSP Disclosures on the Mortgage Market

How large an effect YSP disclosures may have on the mortgage market cannot be

projected from the study results. The proportion of consumers mistakenly choosing more

expensive loans or exhibiting unwarranted bias against broker loans is likely to depend on the

proportion of consumers making such comparisons and the relative costs of the loans being

compared. The YSP disclosures had a large adverse effect on consumer cost comparisons and

loan choices in the cost scenarios examined in the study. The magnitude of these effects may be

higher for some other cost scenarios and lower for others.

The magnitude of the effect also will depend on the impact of incorporating the

disclosures into the full GFE rather than the abstracted versions used in the study. If consumers
Analysis

51 Of course, if consumers do not read and use the YSP disclosure when it appears in the

full GFE, the disclosure also will not provide the intended benefits.

51

are less likely to read and use the YSP disclosure when it appears in the full GFE, a smaller

proportion of consumers may be adversely affected.51

The impact of the YSP disclosures also may be affected if more of the loan cost figures

differed between the loans being compared. The experiment simplified the comparisons by

making almost all of the loan and settlement costs identical. Only the origination costs and YSPs

differed between the loans. In a real shopping situation, other loan terms also may vary. The

additional variation could lessen the effect of the YSP disclosures if the other differences provide

additional cues as to which loan is less costly. But the additional variation could magnify the

effect if more consumers focus on the large YSP difference rather than considering all of the

other differences.

The impact of the disclosure also could be reduced to the extent that some brokers already

are disclosing their YSPs. This effect may be limited, however, because those who are disclosing

YSPs are not likely to be adding it to the origination charges paid by the consumer and disclosing

the total as a gross origination charge, as in the HUD proposal. A simple line item in the

disclosure forms labeled “yield spread premium” or “POC” (for “paid outside of closing”) is

most likely to be ignored by consumers rather than fostering consumer confusion as does the

HUD-proposed disclosure.

Finally, the magnitude of the effect also will depend on the response of originators. The

proportion of borrowers who are confused and make unnecessarily expensive loan choices may

be reduced if brokers explain to borrowers the proper interpretation of the disclosure and how to

compare the cost of the loan to other offers. The proportion may be increased, however, if direct

lenders draw borrowers’ attention to the disclosure and encourage misinterpretation. 

Although these qualifications imply that the impact of YSP disclosures on the market

cannot be estimated, the study findings suggest that effect is likely to be significant. The impact

of YSP disclosures in the experimental setting was quite large and there is little reason to believe

that the impact will not be significant in real shopping situations.

If the YSP disclosures have an impact similar to the magnitude found in the experimental

results, the aggregate costs imposed on consumers would be substantial. When respondents were

shown two loans, and one loan was less expensive than the other, the YSP disclosures increased

the proportion of respondents mistakenly choosing the more expensive loan by 12.6 to 25.2

percentage points, depending on the disclosure version, with the low end of the range
Mortgage Broker Compensation Disclosures

52 The average across the three disclosure versions was 20.6 percentage points.

53 These figures assume that the annual number of mortgage originations is equal to the

11.1 million average level that occurred during the period of 1997 through 2001 (HUD, 2002b,

8). Assuming that between 12.6 and 25.2 percent of these borrowers mistakenly chose a loan

that is $300 more expensive yields total additional costs of $420 to $839 million per year. These

figures would be significantly higher using origination levels that occurred during 2002 and

2003, which by 2003 reached nearly twice the earlier average due to the high level of refinances.

52

corresponding to the revised prototype and the high end to the original HUD proposal.52 The

settlement costs for this loan were $300 more than the alternative. If between 12.6 and 25.2

percent of consumers obtaining mortgages mistakenly pay $300 more for their loan, the total

impact would be approximately $400 to $800 million in additional costs paid by consumers each

year.53 These costs could be raised even higher by the adverse effect of the disclosures on

competition.

There is no way of knowing whether the actual effect of the YSP disclosures would be of

the magnitude found in the experimental results. The cost figures presented here cannot be

viewed as an estimate of the actual costs that the disclosure will impose, but they illustrate that

the costs could be quite high.

4.4 Source of the Consumer Confusion

There may be a number of reasons why the compensation disclosures cause the consumer

confusion found in this study. The disclosure of compensation in a document that otherwise

itemizes consumer costs may lead some borrowers to assume incorrectly that it is a charge they

must pay themselves. Some borrowers also may be confused by the resulting adjustment to the

disclosed origination charge and mistakenly believe that they must pay the gross amount, which

is inflated to include the YSP, rather than the net amount that is payable by the borrower. Other

borrowers may misinterpret the disclosure to mean that the interest rate on the loan is higher than

the interest rates in other offers that do not disclose a YSP, even when the interest rate is the

same. And some borrowers may be unable to understand the disclosure at all and avoid the loan

because of the uncertainty about how much they must pay. All of these types of confusion were

suggested by comments of study respondents.

The asymmetry of the proposed disclosure will increase the prevalence of consumer

confusion by increasing the likelihood that consumers will be confronted with different

disclosures for two loans that have similar costs. As found in the study, consumers view broker 
Analysis

54 Consumer confusion also may occur in the absence of the asymmetry. One might

expect similar confusion, for example, if consumers compared two broker loans that disclosed

YSPs, but one YSP was larger than the other. If borrowers focus on the compensation disclosure

rather than the loan costs, and assume incorrectly that they must pay the YSP themselves, or that

they must pay the entire gross origination charge, then they are likely to be confused in the same

way as were the study respondents.

55 As noted earlier, consumers also may find it useful to comparison shop on the APR,

particularly if they intend to hold the loan until the full term.

53

and direct lender loans very differently when a compensation disclosure is added to the broker

loan disclosure form, even when the cost of the two loans is the same.54

4.5 Alternative Policy

The YSP disclosures are intended to improve consumer understanding of the cost of

mortgage loans, increase price competition among mortgage originators, and lower mortgage

costs to consumers. The study finds, however, that the disclosures are likely to create greater

misunderstanding of loan costs, lead a significant proportion of consumers to choose more

expensive loans, reduce competition among originators, and increase the costs of mortgages. 

A more beneficial disclosure policy would focus on the cost of the loan rather than the

compensation earned by the broker. Consumers who are considering the purchase of any type of

good or service make their decisions based on the characteristics of the product and its cost, not

the compensation earned by the seller. There appears to be little reason why this should be

different in the market for mortgage loans. Mortgage shoppers should focus on interest rates,

monthly payments, and up-front costs when they get a loan offer, compare loans, and make a

decision.55 Comparison shopping on these costs will allow consumers to find the least expensive

loan that fits their needs. Clear disclosure of these costs would benefit consumers and avoid the

adverse effects that are likely to arise from compensation disclosures.

Clear disclosure of mortgage costs and comparison shopping by consumers would

address the problem of consumers being placed in above-par loans without their knowledge. If a

mortgage originator offers a consumer a loan with an above-par interest rate, the increased cost to

the consumer will appear directly as a higher interest rate on the loan and a correspondingly

higher monthly payment. The consumer is affected by these cost increases, not by the

originator’s compensation.

Consumers can evaluate the interest rate on a loan offer by comparing it to rates offered

by other originators and or listed in newspapers or on the Internet. Comparison of the interest

rate and other loan costs provides a clear and familiar way for consumers to evaluate the cost of a
Mortgage Broker Compensation Disclosures

54

loan. By comparison shopping on these costs, consumers can evaluate an offer and either be

assured they are obtaining a good deal or find a better one. Disclosure of broker compensation is

unnecessary and, as found in the study, may lead a significant proportion of consumers to instead

choose more expensive loans.

Comparison shopping on rates, monthly payments, and up-front costs also avoids the

asymmetry of the proposed YSP disclosure. Loan costs are available from both brokers and

lenders and can be compared directly across the two types of originators. Under the proposed

HUD policy, compensation would be disclosed only for broker loans, even though direct lenders

may be earning similar or even greater compensation. The absence of the disclosure for lender

loans not only reduces whatever benefit the disclosures may have for consumers but may actually

mislead consumers into believing incorrectly that lender loans are always at the par rate.

Some consumers currently may not comparison shop when obtaining a mortgage and

consequently may pay higher rates than those available elsewhere in the market. Helping these

consumers is an important policy goal and a key rationale behind HUD’s YSP proposal. But the

study findings suggest that YSP disclosures are likely to harm a significant proportion of

consumers. A better policy approach would be to encourage and facilitate more comparison

shopping. 

Comparison shopping could be encouraged if consumers were informed clearly that

mortgage originators are not necessarily providing them with the lowest cost loan and that

comparison shopping with other originators is the only way to ensure they are getting a good

deal. Comparison shopping also could be facilitated if the disclosure forms provided greater

guidance on what cost figures to compare across loans and if the forms were simpler and more

easily understood. The HUD RESPA reform proposal already includes these ideas in the

proposed improvements to the GFE. These proposals, along with appropriate refinements to

ensure that the disclosures are easily understood by consumers, should encourage and facilitate

comparison shopping. This approach would benefit consumers without creating the confusion

and mistaken loan choices that are likely to arise from compensation disclosures.

One might consider including a compensation disclosure if the disclosure was qualitative

and symmetrically applied to both direct lenders and mortgage brokers. The disclosure that

mortgage originators are not necessarily providing the borrower with the lowest cost loan might

be followed by a disclosure that states, for example: "Both mortgage brokers and direct lenders

may earn greater compensation if you pay a higher interest rate or higher fees." Such a disclosure

may reinforce the message that the originator is not necessarily shopping on the consumer's

behalf and encourage more comparison shopping by consumers. 

Additional measures to encourage comparison shopping also might be explored. These

measures could be aimed at both increasing consumer awareness of the potential benefits of
Analysis

55

comparison shopping and reducing the costs of comparison shopping. Policymakers may wish to

consider, for example, how to make consumers more aware of Internet-based mortgage choice

calculators. Consumers can use such calculators to find the mortgage that best fits their needs

based on individual factors such as expectations on how long they are likely to hold the mortgage

and possible changes in their future income. The Internet also is making it easier for consumers

to identify a wide range of mortgage products, including loans designed for consumers in

different risk classes. More readily available information on market rates and settlement costs

for a variety of loan products would better inform consumers of market prices, provide

benchmarks that can be used to evaluate loan offers, and facilitate comparison shopping. 

Policymakers also may wish to explore whether consumers would be more likely to comparison

shop if they had a better understanding of the possible benefits. If consumers better understood

the degree of price dispersion in the market and the present value of paying an interest rate of,

say, one half a percentage point less on a 30-year loan (which for a 6.5 versus 6.0 percent rate is

equal to the equivalent of almost five and a half points if the loan is held for the full term and

more than two points if the loan is held for seven years), they might be more inclined to

comparison shop.

57

5

CONCLUSIONS

This study presents the results of an experiment that examined the effects of broker

compensation disclosures on consumers and competition in the mortgage loan market. Recent

mortgage customers were shown cost information about two hypothetical mortgage loans and

asked to identify which loan was less expensive and which loan they would choose if they were

shopping for a mortgage. Broker compensation in the form of a YSP was disclosed in the cost

information shown to some of the respondents but was not disclosed to others. Three versions of

the YSP disclosure were tested: one based on the disclosure published by HUD as part of its

RESPA reform proposal in July 2002 (the "original HUD proposal"), one prepared after

discussions with HUD staff in January 2003 concerning YSP disclosures (the "revised

prototype"), and one that used the revised prototype format but with alternative YSP disclosure

language drafted by FTC staff ("FTC YSP language").

HUD intends that the YSP disclosures will enable consumers to recognize high cost loans

and negotiate better deals. The study finds, however, that YSP disclosures reduce significantly

the proportion of respondents correctly identifying the less expensive loan and the proportion

stating they would choose that loan if they were shopping for a mortgage. The findings indicate

that YSP disclosures, if noticed and read by consumers, are likely to lead a significant proportion

of consumers to choose more expensive loans. 

The mistaken loan choices induced by the compensation disclosures could impose

significant costs on consumers, both individually and as a whole. If the disclosure requirement

has an impact similar to the magnitude found in one of the hypothetical loan cost scenarios

examined in the study, the disclosures would lead mortgage customers to incur additional costs

of hundreds of millions of dollars per year. Because we did not test actual loan scenarios and

because more consumers in our controlled experiment are likely to have noticed and read the

disclosure than would occur in the actual market, this figure cannot be viewed as an estimate of

the actual costs that the disclosure will impose. Nevertheless, it illustrates that the costs could be

quite high. Whatever the size of the costs, the contemplated disclosure does not appear to be

beneficial to consumers. 

The study also finds that YSP disclosures will result in a significant consumer bias

against broker loans, even when the broker loans cost the same or less than direct lender loans. 

The bias may have anticompetitive effects that reduce competition for mortgage originations and

increase costs to consumers. The increased costs could affect all mortgage customers, not just

those confused by the disclosures. 
Mortgage Broker Compensation Disclosures

58

All three versions of the YSP disclosure tested in the study resulted in consumer

confusion about loan costs and a bias against broker loans. This included versions that moved

the disclosure to a second page of the cost information. The findings indicate that all three

versions are likely to harm consumers and competition in the mortgage market.

A better way to help consumers obtain less expensive mortgages would be to encourage

and facilitate comparison shopping on the loan costs. Rather than focusing on broker

compensation, consumers should examine the interest rate, monthly payments, and up-front costs

they will pay (and possibly the APR) and compare these costs across different originators. 

Comparison shopping could be encouraged through disclosures that inform consumers

that mortgage originators are not necessarily providing them with the lowest cost loan and that

comparison shopping with other originators is the only way to ensure they are getting a good

deal, by providing guidance on what loan cost figures to compare across originators, and by

making the cost disclosures simpler and more easily understood. The HUD RESPA reform

proposal already includes these ideas in the proposed improvements to the GFE. These

proposals, along with appropriate refinements to ensure that the disclosures are easily understood

by consumers, may be sufficient to encourage and facilitate comparison shopping. This approach

would benefit consumers without creating the confusion and mistaken loan choices that are likely

to arise from compensation disclosures. 

Regardless of the policy alternatives pursued here or elsewhere, the study findings

illustrate the importance of consumer research in the development of information policy for

consumer markets. Seemingly useful disclosures designed with good intent can produce

unintended consequences that are counterproductive to the desired policy goals. Consumer

research can help policymakers assess whether proposed disclosures are understood and the

effect the disclosures are likely to have on consumers and competition. Further development of

the YSP or other disclosure alternatives should be pursued only after careful consumer testing.

HUD’s RESPA reform proposal pursues the important goals of increasing competition

and lowering costs to consumers in the mortgage loan market. Many of the components of the

proposal promote these ends and are likely to benefit consumers, particularly the removal of

restraints on packaging and the efforts to improve the understandability of the GFE. This study

finds, however, that broker compensation disclosures are likely to act against these goals and

result in more confusion, less competition, and higher costs for consumers.
59

REFERENCES

Federal Trade Commission (FTC) (2002). Staff of the Bureau of Economics, Bureau of

Consumer Protection, and Office of Policy Planning. Comment on the Proposed

Amendments to the Regulations Implementing the Real Estate Settlement Procedures Act,

Docket No. FR-4727-P-01, (October 28).

Jackson, Howell, E. (2002). Prepared Testimony for Hearing on “Predatory Mortgage Lending

Practices: Abusive Uses of Yield Spread Premiums” before the U.S. Senate Committee

on Banking, Housing, and Urban Affairs, (January 8).

_____ and Jeremy Berry (2002). “Kickbacks or Compensation: The Case of Yield Spread

Premiums.” Unpublished Paper. (Available from authors.)

LaMalfa, Tom (2001). “Who’s Who In Wholesale 2000.” Mortgage Banking, (March) pp. 45-52.

Olson, David (2002). Prepared Testimony for Hearing on “Predatory Mortgage Lending

Practices: Abusive Uses of Yield Spread Premiums” before the U.S. Senate Committee

on Banking, Housing, and Urban Affairs, (January 8).

Rheingold, Ira (2002). Prepared Testimony for Hearing on “Predatory Mortgage Lending

Practices: Abusive Uses of Yield Spread Premiums” before the U.S. Senate Committee

on Banking, Housing, and Urban Affairs, (January 8).

_____ (2003). Prepared Testimony for Hearing on “The Impact of the Proposed RESPA Rule on

Small Businesses and Consumers” before the U.S. Senate Committee on Banking,

Housing, and Urban Affairs, (April 8).

U.S. Department of Housing and Urban Development (HUD) (2002a). “Real Estate Settlement

Procedures Act (RESPA); Simplifying and Improving the Process of Obtaining

Mortgages to Reduce Settlement Costs to Consumers; Proposed Rule,” 67 Federal

Register 49,134 (to be codified at 24 C.F.R. Pt. 3500) (July 29).

_____ (2002b). Office of Policy Development and Research. Economic Analysis and Initial

Regulatory Flexibility Analysis for RESPA Proposed Rule to Simplify and Improve the

Process of Obtaining Mortgages to Reduce Settlement Costs to Consumers, (July).

Woodward, Susan E. (2002). Statement at hearing on “Predatory Mortgage Lending Practices:

Abusive Uses of Yield Spread Premiums” before the U.S. Senate Committee on Banking,

Housing, and Urban Affairs, (April). (Available from authors.)
APPENDIX A 

Original HUD Proposal GFE Form 

A-1

A-3
A-4
A-5
B-1

APPENDIX B 

Screening Questionnaire 

B-3

 U.S. RESEARCH COMPANY 

 Financial Study

 #75301006

 Screener

___________________________________________________________________________________________________ 

 MARKET:

I.D.#__________________ EDT#________________ (06) 1 Atlanta 

 (01-05) 2 Austin 

 3 Boston 

DATE OF INTERVIEW: VAL#________________ 4 Chicago 

 5 Edison 

 6 Los Angeles 

____ ____/____ ____03 7 Orlando 

 8 St. Louis 

Name of Recruiter:__________________________________________________________

Name of Interviewer:________________________________________________________ 

___________________________________________________________________________________________________ 

 CELL: AGE: GENDER: EDUCATION: ETHNICITY:

(07) 1 (08) 1 18-24 (09) 1 Male (10) 1 High School or less (12) 1 Hispanic/Latino 

 2 2 25-34 2 Female 2 Some College or higher (13) 2 White 

 3 3 35-44 (14) 3 Black/AA 

 4 4 45-54 QUOTA: (15) 4 American Indian/Alaska Native 

 5 5 55-64 (11) 1 Recent Mortgage Customer (16) 5 Asian 

 6 65 or older 2 Current Shopper (17) 6 Native Hawaiian or other 

 Pacific Islander 

___________________________________________________________________________________________________ 

Name of Respondent:_______________________________________________________________ 

Address:________________________________________________________________________ 

City:___________________________________State:_________________Zip:_________________ 

Home Telephone #: ( ) 

Work Telephone #: ( ) 
B-4

Screening Questionnaire

Hello, I'm ______________ from U.S. Research, a nationwide market research company. We 

are not selling anything . . . we just want to talk to consumers like you. Could you spare us a few 

minutes to answer some brief questions? Thank you. 

 

1a. In the last three years, have you purchased or leased a motor vehicle? 

 (18) 1 Yes 

 2 No 

1b. In the last three years, have you taken out a mortgage to either purchase a home, 

refinance an existing mortgage, or get a home equity loan or second mortgage? 

(19) 1 Yes 

 2 No 

1c. Are you currently shopping for a mortgage to either purchase a home, refinance an 

existing mortgage, or get a home equity loan or second mortgage? 

(20) 1 Yes 

 2 No 

1d. In the last three years, have you purchased airline tickets? 

 (21) 1 Yes 

 2 No 

 If “Yes” to Q.1b OR Q.1c —> Continue _________________ 

 If “No” to Q1b AND Q.1c —> Terminate and Tally _________________ 

 (22-23) 

Interviewer note for the next and later questions: Qualified respondents who answered “Yes” to 

Q.1b are considered “RECENT MORTGAGE CUSTOMER.” Qualified respondents who 

answered “No” to Q.1b are considered “CURRENT SHOPPER.” 

 If “RECENT MORTGAGE CUSTOMER” –> Go to Q.2a 

 If “CURRENT SHOPPER” —> Go to Q.2b 

 _________________ 

TERMINATE AND TALLY IF QUOTA IS FILLED _________________ 

 (24-25) 
B-5

2a. In getting the mortgage, who was the main person in your household who shopped for 

and made decisions on the mortgage? Was it you or someone else in your household? 

 (26) 1 The respondent —> Skip to Q.3 

 2 Both / joint —> Skip to Q.3 _________________ 

 3 Someone else —> Terminate and Tally _________________ 

 (29-30) 

2b. In shopping for the mortgage, who is the main person in your household who is shopping 

for and making decisions on the mortgage? Is it you or someone else in your household? 

 (27) 1 The respondent —> Continue to Q.3 

 2 Both / joint —> Continue to Q.3 _________________ 

 3 Someone else —> Terminate and Tally _________________ 

 (31-32) 

3. Have you or anyone in your household ever worked . . . 

 – In marketing research? 

 – In advertising or public relations? 

 – For a bank, mortgage broker, or finance company? 

 _________________ 

 If “Yes” to any of the above —> Terminate and Tally _________________ 

 No —> Continue (33-34) 

3a. How many market research surveys have you participated in within the past 3 months? 

 _________________ 

 a One or more—> Terminate and Tally _________________ 

 b None—> Continue (35-36) 

4. (Show age category card to respondent.) Please look at this card and tell me which of the 

categories, “A” through “F”, describes your age. 

 (28) 1 a. 18 – 24 years old 

 2 b. 25 – 34 years old _________________ 

 3 c. 35 – 44 years old _________________ 

 4 d. 45 – 54 years old (37-38) 

 5 e. 55 – 64 years old 

 6 f. 65 or more years old 

 _________________ 

 g. Don't know (NOT ON CARD) Terminate and Tally _________________ 

 (39-40) 

 h. Refused (NOT ON CARD) Terminate and Tally _________________ 

 _________________ 

 (41-42) 

 Terminate and Tally 

 if quota is filled 
B-6

5. What is the last grade of school you completed? 

 (DO NOT READ LIST) 

 (43) 1 a. Less than high school graduate 

 2 b. High school graduate 

 3 c. Some college If quota is filled, _________________ 

 4 d. Graduated college Terminate and Tally _________________ 

 5 e. Graduate school or more (50-51) 

 6 f. Technical/trade school 

 _________________ 

 g. Don’t know Terminate and Tally _________________ 

 (52-53) 

 h. Refused Terminate and Tally _________________ 

 _________________ 

 (54-55) 

6. Are you of Hispanic or Latino origin? 

 (DO NOT READ LIST) 

 (44) 1 Yes If quota is filled, _________________ 

 2 No Terminate and Tally _________________ 

 (56-57) 

 _________________ 

 c. Don’t know Terminate and Tally _________________ 

 (58-59) 

 d. Refused Terminate and Tally _________________ 

 _________________ 

 (60-61) 

7. (Show race category card to respondent.) Please look at this card and tell me which of 

the categories “H” through “L” best describes your race. You may select more than one 

category if more than one describes your race. 

 (45) 1 h. White 

 (46) 2 i. Black or African American If quota is filled, 

 (47) 3 j. American Indian or Alaska Native Terminate and Tally 

 (48) 4 k. Asian _________________ 

 (49) 5 l. Native Hawaiian or Other Pacific Islander _________________ 

 (62-63) 

 _________________ 

 m. Don't know (NOT ON CARD) Terminate and Tally _________________ 

 (64-65) 

 n. Refused (NOT ON CARD) Terminate and Tally _________________ 

 _________________ 

 (66-67)
B-7

8. (Show income category card to respondent.) Please look at this card and tell me which of 

the categories, “H” through “N”, best describes your total annual household income. 

 (68) 1 h. Less than $15,000 

 2 i. $15,000 to $24,999 

 3 j. $25,000 to $39,999 

 4 k. $40,000 to $49,999 

 5 l. $50,000 to $74,999 

 6 m. $75,000 to $99,999 

 7 n. $100,000 or more 

 8 o. Don't know (NOT ON CARD) 

 9 p. Refused (NOT ON CARD) 

9. Do you usually wear eyeglasses or contact lenses when you read? 

 (69) 1 Yes —> Continue 

 2 No —> Skip to Q.11 

10. Do you have your eyeglasses or contact lenses with you today? 

 (70) 1 Yes —> Continue _________________ 

 2 No —> Terminate and Tally _________________ 

 (72-73) 

11. (Record sex – do not ask) 

 (71) 1 Male —> Continue 

 2 Female –> Continue 

12. I'd like you to accompany me to the interviewing area where we can do the survey. I will 

show you some materials about mortgage loans and then ask you a few questions about it. 

We'll be giving you $2.00 to thank you for participating. I think that you'll find it 

interesting, and it will take only a few minutes. 

13. (GET NAME, ADDRESS AND HOME TELEPHONE NUMBER. IF RESPONDENT 

REFUSES TO GIVE YOU EITHER ADDRESS OR HOME TELEPHONE NUMBER, 

TERMINATE AND TALLY.) _________________ 

 _________________ 

 (74-75) 

 (ESCORT RESPONDENT TO FACILITY) 76-79Z 

 80-1 
B-8

Confidentiality Statement and Consent Form 

We are U.S. Research Company. We conduct consumer surveys and other types of consumer 

research. We are conducting a survey with about 500 consumers to examine consumer reactions 

to different ways of presenting information about the cost of mortgage loans. We will show you 

some information about the cost of mortgage loans and ask you some questions about it. We 

also will ask you some questions about your past experience obtaining mortgage loans. The 

questions will not be trying to test you. We are just trying to get consumer reactions to different 

ways of presenting cost information. 

 

We want you to understand the following about the survey: 

1. Your participation is completely voluntary. 

2. You do not have to answer any questions that you do not want to answer. 

3. You may stop participating at any time during the interview. 

4. Your identity and participation in the survey will be kept strictly confidential. 

Your name will not be used in any report and you will not be contacted for any 

type of sales or marketing. Someone may contact you simply to verify that the 

survey was conducted. 

5. The interview will take about 12 minutes to complete. 

6. You will receive $2 at the completion of the interview to thank you for 

participating. 

If you have read and understood this description of the survey and your rights and agree to 

participate, please print your name and sign and date the form below. 

Thank you for your participation in this important project. 

 

Name: 

 (PLEASE PRINT) 

Signature: 

Date: 

 U.S. Research Company
C-1 

APPENDIX C 

Main Questionnaire 

C-3 

I.D.#____________________ Financial Study CELL:

#75301006 (06) 1 

Start Time:____ ____:____ ____ Main Questionnaire 2 

 3 

 4 

 5 

(INTERVIEWER: CHECK SCREENER Q.10). 

- IF RESPONDENT DOES NOT WEAR GLASSES OR CONTACT LENSES FOR 

READING, SKIP TO CONFIDENTIALITY STATEMENT AND CONSENT FORM. 

- IF RESPONDENT WEARS GLASSES OR CONTACT LENSES FOR READING, 

SAY: 

"If you wear glasses for reading, please put them on". 

"If you wear contact lenses for reading, please insert them if they are not already 

inserted". 

(Give copy of the Confidentiality Statement and Consent Form to the respondent.) This 

form describes the survey we are conducting, your rights during the survey, and assures 

you that we will keep your participation confidential. Please take a minute to read this. 

If you have any questions, please ask me. (After the respondent signs the form:) Thank 

you. 

 If “RECENT MORTGAGE CUSTOMER” –> Go to Q.1a 

 If “CURRENT SHOPPER” —> Go to Q.2 

 1a. Thinking about the last time you took out a mortgage, how many different lenders 

or mortgage brokers did you contact while shopping for that mortgage? 

(07-08) 

 (Record number) ___________________ 

 98 Don’t know 

 99 Refused 

 1b. Thinking about the company you got that mortgage from, had you done business 

with them before you got that mortgage? 

 (09) 1 Yes —> Skip to Q.3 

 2 No —-> Skip to Q.3 

 2. Thinking about the mortgage you are shopping for, how many different lenders or 

mortgage brokers have you contacted so far while shopping for the mortgage? 

 (10-11) 

 (Record number) ___________________ 

 98 Don’t know 

 99 Refused 
V-1 (Y) 

C-4 1/1/GR/VM 

 (GENTLY PULL LOANS G AND R FROM BACK OF QUESTIONNAIRE.) 

 3. Now I'm going to show you some information about the cost of two different 

mortgage loans. I’m going to ask you to look at the information and tell me 

which of the two loans would cost you less. (Place the first set of loan cards on 

the table in front of the respondent.) The information on the cards does not 

include some costs such as homeowners insurance and property taxes. Assume 

that any costs not listed are the same for both loans. Please look at this 

information, and when you are ready, tell me, based on the information shown on 

the cards about the loan terms and settlement costs, which loan would cost you 

less. Would Loan G cost you less, would Loan R cost you less, or would 

both loans cost you the same? 

 (12-13) 

 Loan G 11 

 Loan R 12 

 98 Both the same 

 99 (DO NOT READ) Don't know 

 4. Why do you say that (Repeat respondent’s answer to Q.3: “Loan __________ 

would cost you less” or “both would cost you the same)? [open-ended] (Probe: 

“Anything else?” Probe until unproductive.)

 

 14-15 24-25 

 16-17 26-27 

18-19 28-29 

20-21 30-31 

 22-23 32-33 

 5. (Show “certainty” category card to respondent.) Please look at this card and tell 

me which of the categories, “1” through “5”, best describes how certain you are 

that (Repeat respondent’s answer to Q.3: “Loan __________ would cost you 

less” or “both would cost you the same). 

 (34) 1. Very certain 

 2. Somewhat certain 

 3. Neither certain nor uncertain 

 4. Somewhat uncertain 

 5. Very uncertain 

 8. Don't know (NOT ON CARD) 

 9. Refused (NOT ON CARD) 
V-1 (Y) 

C-5 1/1/GR/VM 

6. If you were shopping for a mortgage loan and had to choose between one of these 

two loans, which loan would you choose, Loan G or Loan R ? (DO NOT 

READ LIST). 

 (35-36) 

 Loan G 11 

 Loan R 12 

 96 Either, both the same

 97 Neither 

 98 Don’t know 

 99 Refused 

7. Why do you say (Repeat respondent’s answer to Q.6)? [open-ended] (Probe: 

“Anything else?” Probe until unproductive. 

 

 37-38 47-48 

 39-40 49-50 

41-42 51-52 

43-44 53-54 

45-46 55-56 

REMOVE LOANS G AND R FROM VIEW. 

(GENTLY PULL LOANS V AND M FROM BACK OF QUESTIONNAIRE.) 

8. Now I’m going to ask you to do this one more time with two other mortgage 

loans. (Place the second set of loan cards on the table in front of the respondent.) 

Again, please look at this information, and when you are ready, tell me, based on 

the information shown on the cards about the loan terms and settlement costs, 

which loan would cost you less. Would Loan V cost you less, would 

Loan M cost you less, or would both loans cost you the same?

 (57-58) 

 Loan V 14 

 Loan M 13 

 98 Both the same

 99 (DO NOT READ) Don't know 
V-1 (Y) 

C-6 1/1/GR/VM 

 9. Why do you say that (Repeat respondent’s answer to Q.8: “Loan ___________ 

would cost you less” or “both would cost you the same)? [open-ended] (Probe: 

“Anything else?” Probe until unproductive.)

 

 59-60 69-70 

 61-62 71-72 

63-64 73-74 

65-66 75-76 

67-68 77-78 

 79Z 80-2 

 10. (Show “certainty” category card to respondent.) Please look at this card and tell 

me which of the categories, “1” through “5”, best describes how certain you are 

that (Repeat respondent’s answer to Q.8: “Loan __________ would cost you 

less” or “both would cost you the same). 

 (06) 1. Very certain 

 2. Somewhat certain 

 3. Neither certain nor uncertain 

 4. Somewhat uncertain 

 5. Very uncertain 

 8. Don't know (NOT ON CARD) 

 9. Refused (NOT ON CARD) 

 11. If you were shopping for a mortgage loan and had to choose between one of these 

two loans, which loan would you choose, Loan V or Loan M ? (DO 

NOT READ LIST) 

 (07-08) 

 Loan V 14 

 Loan M 13 

 96 Either, both the same 

 97 Neither 

 98 Don’t know 

 99 Refused 
V-1 (Y) 

C-7 1/1/GR/VM 

 12. Why do you say (Repeat respondent’s answer to Q.11)? [open-ended] (Probe: 

“Anything else?” Probe until unproductive.)

 

 09-10 19-20 

 11-12 21-22 

13-14 23-24 

 15-16 25-26 

17-18 27-28 

 13. Now I want to ask you about one of the items listed on this form. (Point to the 

line in the card for Loan V that says “Interest rate dependent payment. Lender 

payment to borrower for higher interest rate”). When this says “Interest rate 

dependent payment. Lender payment to borrower for higher interest rate”, what 

does that mean to you? [open-ended] (Probe: “Anything else?” Probe until 

unproductive.)

 

 29-30 39-40 

 31-32 41-42 

33-34 43-44 

 35-36 45-46 

37-38 47-48 

 14. If “RECENT MORTGAGE CUSTOMER” –> Continue 

 If “CURRENT SHOPPER” —> Go to Q.15 

 Now to finish up, I want to ask you a couple of questions about your experience 

obtaining mortgages. Thinking about the last time you took out a mortgage, 

please look at this card and tell me which of the categories, “A” through “E”, best 

describes how long ago you took out this mortgage. 

 (49) 1 a. Less than 3 months ago. 

 2 b. 3 months ago but less than 6 months ago. 

 3 c. 6 months ago but less than 1 year ago. 

 4 d. 1 year ago but less than 2 years ago. 

 5 e. More than 2 years ago. 
V-1 (Y) 

C-8 1/1/GR/VM 

15. Now I want to ask you about the total number of mortgages you have ever taken 

out. Please count all types of mortgage transactions – for purchasing a home, 

refinancing an existing mortgage, obtaining a home equity loan, or obtaining a 

second mortgage. And please count all mortgages, no matter how long ago you 

took them out. Approximately how many times have you ever taken out a 

mortgage?

 (50-51) 

 (Record number) ___________________ 

 98 Don’t know 

 99 Refused 

 

That completes our study. Thank you very much for taking the time to participate. 

END TIME: _____ _____:______ _____ 

CHECK START TIME AND END TIME. RECORD LENGTH OF INTERVIEW: 

 _____ _____ MINUTES 

 (52-53) 

 54-55/14 

TURN TO NEXT PAGE. 

 56-79Z 

 80-3 
V-1 (Y) 

C-9 1/1/GR/VM 

I.D.#____________________ 

16. I'd like you to complete some information and sign that you were interviewed. 

PRINT NAME:________________________________________________________________ 

ADDRESS:___________________________________________________________________ 

CITY:____________________________STATE:______________ZIP:____________________ 

TELEPHONE NUMBER:(____ ____ ____) _____ _____ _____ - ____ _____ _____ ____ 

 AREA CODE 

INTERVIEWER'S NAME:_______________________________________________________ 

(RESPONDENT PLEASE READ AND SIGN:) 

I acknowledge that I was interviewed on this date. During the interview, I was shown a 

number of mortgage loans and asked some questions about them. 

SIGNATURE:___________________________________________DATE:______/______/03 
D-1

APPENDIX D 

LOAN COST DISCLOSURE FORMS 

 The loan cost information disclosure forms shown to respondents in the loan comparison 

and loan choice tests are presented in this appendix. All versions that were used in the study are 

included. 

The versions of the disclosure forms differ in three respects. First, the overall format of 

the form and the wording of the YSP disclosure differ across the five disclosure groups. Two 

groups use a one-page format based on the original HUD proposal and three groups use a twopage format based on the “revised prototype.” Also, one group in each format omits the YSP 

disclosure so that it can be used as a control. Second, the loan cost figures differ between the test 

in which one loan was less expensive than the other and the test in which both loans cost the 

same. Third, in disclosure groups that include a YSP disclosure, a YSP was disclosed for one of 

the two loans shown to respondents but not the other. The specification of the disclosure 

groups, loan cost figures, and YSP disclosures are discussed in detail in the Methodology section 

of this report. 

In each test, two loans were shown to respondents. The loans were labeled “Loan G” and 

“Loan R” in the test in which one loan was less expensive than the other and “Loan V” and 

“Loan M” in the test in which both loans cost the same. In disclosure groups that included a 

YSP disclosure, loans “G” and “V” were considered to be broker loans and disclosed a YSP. 

Loans “R” and “M” were considered to be direct lender loans and did not disclosure a YSP. This 

disclosure formulation followed the asymmetric policy proposed by HUD. 

The different versions of the disclosure forms are identified on the page that precedes 

each pair of forms. The identification includes the disclosure group and the test version. 

D-3

Disclosure Form Version 

Original HUD proposal 

YSP disclosure included

One loan less expensive than the other 
D-4

LOAN “G” 

 I. LOAN TERMS:

 Loan Amount $ 150,000.00

 Interest Rate 5.75%

 

 Loan Term 30 years

 Monthly Payment $ 875.00

 II. SETTLEMENT COSTS:

 A. Origination Charges $ 4,300.00

 

 B. Interest Rate Dependent Payment 

 (1) (+) Borrower Payment to Lender for Lower Interest Rate: $ 0.00 

 (2) (-) Lender Payment to Borrower for Higher Interest Rate: − $ 3,100.00

 

 NET LOAN ORIGINATION CHARGE DUE FROM BORROWER (Sum of A and B):

 C. Title Services and Title Insurance $ 500.00

 D. Government Charges – Taxes, State and Local $ 300.00

 E. Appraisal Fee $ 200.00

 TOTAL SETTLEMENT COSTS DUE FROM BORROWER (Sum of A-E): 

$ 1,200.00

$ 2,200.00
D-5

LOAN “R” 

 I. LOAN TERMS:

 Loan Amount $ 150,000.00

 Interest Rate 5.75%

 

 Loan Term 30 years

 Monthly Payment $ 875.00

 II. SETTLEMENT COSTS:

 A. Origination Charges $ 1,500.00

 

 B. Interest Rate Dependent Payment 

 (1) (+) Borrower Payment to Lender for Lower Interest Rate: $ 0.00 

 (2) (-) Lender Payment to Borrower for Higher Interest Rate: $ 0.00

 

 NET LOAN ORIGINATION CHARGE DUE FROM BORROWER (Sum of A and B):

 C. Title Services and Title Insurance $ 500.00

 D. Government Charges – Taxes, State and Local $ 300.00

 E. Appraisal Fee $ 200.00

 TOTAL SETTLEMENT COSTS DUE FROM BORROWER (Sum of A-E): 

$ 1,500.00

$ 2,500.00
D-6

Disclosure Form Version 

Original HUD proposal 

YSP disclosure included

Both loans cost the same 
D-7

LOAN “V” 

 I. LOAN TERMS:

 Loan Amount $ 125,000.00

 Interest Rate 6.0%

 

 Loan Term 30 years

 Monthly Payment $ 750.00

 II. SETTLEMENT COSTS:

 A. Origination Charges $ 3,200.00

 

 B. Interest Rate Dependent Payment 

 (1) (+) Borrower Payment to Lender for Lower Interest Rate: $ 0.00 

 (2) (-) Lender Payment to Borrower for Higher Interest Rate: − $ 2,500.00

 

 NET LOAN ORIGINATION CHARGE DUE FROM BORROWER (Sum of A and B):

 C. Title Services and Title Insurance $ 600.00

 D. Government Charges – Taxes, State and Local $ 200.00

 E. Appraisal Fee $ 100.00

 TOTAL SETTLEMENT COSTS DUE FROM BORROWER (Sum of A-E): 

$ 700.00

$ 1,600.00
D-8

LOAN “M” 

 I. LOAN TERMS:

 Loan Amount $ 125,000.00

 Interest Rate 6.0%

 

 Loan Term 30 years

 Monthly Payment $ 750.00

 II. SETTLEMENT COSTS:

 A. Origination Charges $ 700.00

 

 B. Interest Rate Dependent Payment 

 (1) (+) Borrower Payment to Lender for Lower Interest Rate: $ 0.00 

 (2) (-) Lender Payment to Borrower for Higher Interest Rate: $ 0.00

 

 NET LOAN ORIGINATION CHARGE DUE FROM BORROWER (Sum of A and B):

 C. Title Services and Title Insurance $ 600.00

 D. Government Charges – Taxes, State and Local $ 200.00

 E. Appraisal Fee $ 100.00

 TOTAL SETTLEMENT COSTS DUE FROM BORROWER (Sum of A-E): 

$ 700.00

$ 1,600.00
D-9

Disclosure Form Version 

Original HUD proposal 

YSP disclosure omitted

One loan less expensive than the other 
D-10

LOAN “G” 

 I. LOAN TERMS:

 Loan Amount $ 150,000.00

 Interest Rate 5.75%

 

 Loan Term 30 years

 Monthly Payment $ 875.00

 II. SETTLEMENT COSTS:

 A. Origination Charges $ 1,200.00

 

 B. Title Services and Title Insurance $ 500.00

 C. Government Charges – Taxes, State and Local $ 300.00

 D. Appraisal Fee $ 200.00

 TOTAL SETTLEMENT COSTS DUE FROM BORROWER (Sum of A-D): $ 2,200.00
D-11

LOAN “R” 

 I. LOAN TERMS:

 Loan Amount $ 150,000.00

 Interest Rate 5.75%

 

 Loan Term 30 years

 Monthly Payment $ 875.00

 II. SETTLEMENT COSTS:

 A. Origination Charges $ 1,500.00

 

 B. Title Services and Title Insurance $ 500.00

 C. Government Charges – Taxes, State and Local $ 300.00

 D. Appraisal Fee $ 200.00

 TOTAL SETTLEMENT COSTS DUE FROM BORROWER (Sum of A-D): $ 2,500.00
D-12

Disclosure Form Version 

Original HUD proposal 

YSP disclosure omitted

Both loans cost the same 
D-13

LOAN “V” 

 I. LOAN TERMS:

 Loan Amount $ 125,000.00

 Interest Rate 6.0%

 

 Loan Term 30 years

 Monthly Payment $ 750.00

 II. SETTLEMENT COSTS:

 A. Origination Charges $ 700.00

 

 B. Title Services and Title Insurance $ 600.00

 C. Government Charges – Taxes, State and Local $ 200.00

 D. Appraisal Fee $ 100.00

 TOTAL SETTLEMENT COSTS DUE FROM BORROWER (Sum of A-D): $ 1,600.00
D-14

LOAN “M” 

 I. LOAN TERMS:

 Loan Amount $ 125,000.00

 Interest Rate 6.0%

 

 Loan Term 30 years

 Monthly Payment $ 750.00

 II. SETTLEMENT COSTS:

 A. Origination Charges $ 700.00

 

 B. Title Services and Title Insurance $ 600.00

 C. Government Charges – Taxes, State and Local $ 200.00

 D. Appraisal Fee $ 100.00

 TOTAL SETTLEMENT COSTS DUE FROM BORROWER (Sum of A-D): $ 1,600.00
D-15

Disclosure Form Version 

Revised prototype 

YSP disclosure included

One loan less expensive than the other 
D-16

LOAN “G”

Page 1

Loan Details

Loan amount $150,000.00

 

 

Summary of 

Loan Terms

Interest rate 5.75%

Loan term 30 years

Monthly payment $875.00

Settlement Costs 

Adjusted Origination Charges (see items 1 and 2 on page 2) $1,200.00

Charges for Other Settlement Services (see items 3 through 5 on page 2) $1,000.00

Total Settlement Charges $2,200.00
D-17

LOAN “G”

Page 2

Charges for Loan Origination 

Understanding 

the Settlement 

Charges 1. Our service charge $4,300.00

 2. Charge or credit for the specific interest rate chosen 

 For a higher interest rate loan—the payment by the lender 

 on your behalf that reduces the up-front charge you pay 

 

 For a lower interest rate loan—the additional up-front 

 charge you pay the lender 

− $3,100.00

 A Adjusted Origination Charge $1,200.00

Charges for Other Settlement Services 

 3. Title services and title insurance $500.00

 4. Government taxes and fees $300.00

 5. Appraisal fee $200.00

B Charges for Other Settlement Services $1,000.00

A + B = Total Settlement Charges $2,200.00

X 
D-18

LOAN “R”

Page 1

Loan Details

Loan amount $150,000.00

 

 

Summary of 

Loan Terms

Interest rate 5.75%

Loan term 30 years

Monthly payment $875.00

Settlement Costs 

Adjusted Origination Charges (see items 1 and 2 on page 2) $1,500.00

Charges for Other Settlement Services (see items 3 through 5 on page 2) $1,000.00

Total Settlement Charges $2,500.00
D-19

LOAN “R”

Page 2

Charges for Loan Origination 

Understanding 

the Settlement 

Charges 1. Our service charge $1,500.00

 2. Charge or credit for the specific interest rate chosen 

 For a higher interest rate loan—the payment by the lender 

 on your behalf that reduces the up-front charge you pay 

 

 For a lower interest rate loan—the additional up-front 

 charge you pay the lender 

 $0.00

 A Adjusted Origination Charge $1,500.00

Charges for Other Settlement Services 

 3. Title services and title insurance $500.00

 4. Government taxes and fees $300.00

 5. Appraisal fee $200.00

B Charges for Other Settlement Services $1,000.00

A + B = Total Settlement Charges $2,500.00

X 
D-20

Disclosure Form Version 

Revised prototype 

YSP disclosure included

Both loans cost the same 
D-21

LOAN “V”

Page 1

Loan Details

Loan amount $125,000.00

 

 

Summary of 

Loan Terms

Interest rate 6.0%

Loan term 30 years

Monthly payment $750.00

Settlement Costs 

Adjusted Origination Charges (see items 1 and 2 on page 2) $700.00

Charges for Other Settlement Services (see items 3 through 5 on page 2) $900.00

Total Settlement Charges $1,600.00
D-22

LOAN “V”

Page 2

Charges for Loan Origination 

Understanding 

the Settlement 

Charges 1. Our service charge $3,200.00

 2. Charge or credit for the specific interest rate chosen 

 For a higher interest rate loan—the payment by the lender 

 on your behalf that reduces the up-front charge you pay 

 

 For a lower interest rate loan—the additional up-front 

 charge you pay the lender 

− $2,500.00

 A Adjusted Origination Charge $700.00

Charges for Other Settlement Services 

 3. Title services and title insurance $600.00

 4. Government taxes and fees $200.00

 5. Appraisal fee $100.00

B Charges for Other Settlement Services $900.00

A + B = Total Settlement Charges $1,600.00

X 
D-23

LOAN “M”

Page 1

Loan Details

Loan amount $125,000.00

 

 

Summary of 

Loan Terms

Interest rate 6.0%

Loan term 30 years

Monthly payment $750.00

Settlement Costs 

Adjusted Origination Charges (see items 1 and 2 on page 2) $700.00

Charges for Other Settlement Services (see items 3 through 5 on page 2) $900.00

Total Settlement Charges $1,600.00
D-24

LOAN “M”

Page 2

Charges for Loan Origination 

Understanding 

the Settlement 

Charges 1. Our service charge $700.00

 2. Charge or credit for the specific interest rate chosen 

 For a higher interest rate loan—the payment by the lender 

 on your behalf that reduces the up-front charge you pay 

 

 For a lower interest rate loan—the additional up-front 

 charge you pay the lender 

 $0.00

 A Adjusted Origination Charge $700.00

Charges for Other Settlement Services 

 3. Title services and title insurance $600.00

 4. Government taxes and fees $200.00

 5. Appraisal fee $100.00

B Charges for Other Settlement Services $900.00

A + B = Total Settlement Charges $1,600.00

X 
D-25

Disclosure Form Version 

Revised prototype 

YSP disclosure omitted

One loan less expensive than the other 
D-26

LOAN “G”

Page 1

Loan Details 

Summary of 

Loan Terms

Loan amount $150,000.00

 

Interest rate 5.75%

Loan term 30 years

Monthly payment $875.00

Settlement Costs 

Origination Charges (see item 1 on page 2) $1,200.00

Charges for Other Settlement Services (see items 2 through 4 on page 2) $1,000.00

Total Settlement Charges $2,200.00
D-27

LOAN “G”

Page 2

 1. Our service charge for loan origination $1,200.00 Understanding 

the Settlement 

Charges 2. Title services and title insurance $500.00

 3. Government taxes and fees $300.00

 4. Appraisal fee $200.00

Total Settlement Charges $2,200.00
D-28

LOAN “R”

Page 1

Loan Details 

Summary of 

Loan Terms

Loan amount $150,000.00

 

Interest rate 5.75%

Loan term 30 years

Monthly payment $875.00

Settlement Costs 

Origination Charges (see item 1 on page 2) $1,500.00

Charges for Other Settlement Services (see items 2 through 4 on page 2) $1,000.00

Total Settlement Charges $2,500.00
D-29

LOAN “R”

Page 2

 1. Our service charge for loan origination $1,500.00 Understanding 

the Settlement 

Charges 2. Title services and title insurance $500.00

 3. Government taxes and fees $300.00

 4. Appraisal fee $200.00

Total Settlement Charges $2,500.00
D-30

Disclosure Form Version 

Revised prototype 

YSP disclosure omitted

Both loans cost the same 
D-31

LOAN “V”

Page 1

Loan Details 

Summary of 

Loan Terms

Loan amount $125,000.00

 

Interest rate 6.0%

Loan term 30 years

Monthly payment $750.00

Settlement Costs 

Origination Charges (see item 1 on page 2) $700.00

Charges for Other Settlement Services (see items 2 through 4 on page 2) $900.00

Total Settlement Charges $1,600.00
D-32

LOAN “V”

Page 2

 1. Our service charge for loan origination $700.00 Understanding 

the Settlement 

Charges 2. Title services and title insurance $600.00

 3. Government taxes and fees $200.00

 4. Appraisal fee $100.00

Total Settlement Charges $1,600.00
D-33

LOAN “M”

Page 1

Loan Details 

Summary of 

Loan Terms

Loan amount $125,000.00

 

Interest rate 6.0%

Loan term 30 years

Monthly payment $750.00

Settlement Costs 

Origination Charges (see item 1 on page 2) $700.00

Charges for Other Settlement Services (see items 2 through 4 on page 2) $900.00

Total Settlement Charges $1,600.00
D-34

LOAN “M”

Page 2

 1. Our service charge for loan origination $700.00 Understanding 

the Settlement 

Charges 2. Title services and title insurance $600.00

 3. Government taxes and fees $200.00

 4. Appraisal fee $100.00

Total Settlement Charges $1,600.00
D-35

Disclosure Form Version 

FTC YSP language 

YSP disclosure included

One loan less expensive than the other 
D-36

LOAN “G”

Page 1

Loan Details 

Summary of 

Loan Terms

Loan amount $150,000.00

 

Interest rate 5.75%

Loan term 30 years

Monthly payment $875.00

Settlement Costs 

Adjusted Origination Charges (see items 1 and 2 on page 2) $1,200.00

Charges for Other Settlement Services (see items 3 through 5 on page 2) $1,000.00

Total Settlement Charges $2,200.00
D-37

LOAN “G”

Page 2

Charges for Loan Origination 

Understanding 

the Settlement 

Charges 1. Our service charge for loan origination $4,300.00

 2. Adjustments for the specific interest rate chosen: 

 Rebate—applicable if borrower is paying a higher interest 

 rate to reduce up-front costs 

 

 Charge—applicable if borrower is paying additional 

 up-front fees to reduce the interest rate 

− $3,100.00

 A Adjusted Origination Charge $1,200.00

Charges for Other Settlement Services 

 3. Title services and title insurance $500.00

 4. Government taxes and fees $300.00

 5. Appraisal fee $200.00

B Charges for Other Settlement Services $1,000.00

A + B = Total Settlement Charges $2,200.00

X 
D-38

LOAN “R”

Page 1

Loan Details 

Summary of 

Loan Terms

Loan amount $150,000.00

 

Interest rate 5.75%

Loan term 30 years

Monthly payment $875.00

Settlement Costs 

Adjusted Origination Charges (see items 1 and 2 on page 2) $1,500.00

Charges for Other Settlement Services (see items 3 through 5 on page 2) $1,000.00

Total Settlement Charges $2,500.00
D-39

LOAN “R”

Page 2

Charges for Loan Origination 

Understanding 

the Settlement 

Charges 1. Our service charge for loan origination $1,500.00

 2. Adjustments for the specific interest rate chosen: 

 Rebate—applicable if borrower is paying a higher interest 

 rate to reduce up-front costs 

 

 Charge—applicable if borrower is paying additional 

 up-front fees to reduce the interest rate 

 $0.00

 A Adjusted Origination Charge $1,500.00

Charges for Other Settlement Services 

 3. Title services and title insurance $500.00

 4. Government taxes and fees $300.00

 5. Appraisal fee $200.00

B Charges for Other Settlement Services $1,000.00

A + B = Total Settlement Charges $2,500.00

X 
D-40

Disclosure Form Version 

FTC YSP language 

YSP disclosure included

Both loans cost the same 
D-41

LOAN “V”

Page 1

Loan Details 

Summary of 

Loan Terms

Loan amount $125,000.00

 

Interest rate 6.0%

Loan term 30 years

Monthly payment $750.00

Settlement Costs 

Adjusted Origination Charges (see items 1 and 2 on page 2) $700.00

Charges for Other Settlement Services (see items 3 through 5 on page 2) $900.00

Total Settlement Charges $1,600.00
D-42

LOAN “V”

Page 2

Charges for Loan Origination 

Understanding 

the Settlement 

Charges 1. Our service charge for loan origination $3,200.00

 2. Adjustments for the specific interest rate chosen: 

 Rebate—applicable if borrower is paying a higher interest 

 rate to reduce up-front costs 

 

 Charge—applicable if borrower is paying additional 

 up-front fees to reduce the interest rate 

− $2,500.00

 A Adjusted Origination Charge $700.00

Charges for Other Settlement Services 

 3. Title services and title insurance $600.00

 4. Government taxes and fees $200.00

 5. Appraisal fee $100.00

B Charges for Other Settlement Services $900.00

A + B = Total Settlement Charges $1,600.00

X 
D-43

LOAN “M”

Page 1

Loan Details 

Summary of 

Loan Terms

Loan amount $125,000.00

 

Interest rate 6.0%

Loan term 30 years

Monthly payment $750.00

Settlement Costs 

Adjusted Origination Charges (see items 1 and 2 on page 2) $700.00

Charges for Other Settlement Services (see items 3 through 5 on page 2) $900.00

Total Settlement Charges $1,600.00
D-44

LOAN “M”

Page 2

Charges for Loan Origination 

Understanding 

the Settlement 

Charges 1. Our service charge for loan origination $700.00

 2. Adjustments for the specific interest rate chosen: 

 Rebate—applicable if borrower is paying a higher interest 

 rate to reduce up-front costs 

 

 Charge—applicable if borrower is paying additional 

 up-front fees to reduce the interest rate 

 $0.00

 A Adjusted Origination Charge $700.00

Charges for Other Settlement Services 

 3. Title services and title insurance $600.00

 4. Government taxes and fees $200.00

 5. Appraisal fee $100.00

B Charges for Other Settlement Services $900.00

A + B = Total Settlement Charges $1,600.00

X 
APPENDIX E 

Verbatim Responses to the Question 

Asking the Meaning of the YSP Disclosure 

This appendix presents the verbatim text of responses to the question asking the meaning 

of the YSP disclosure (Question 13). For each respondent, the table presents the number of cost 

comparisons answered correctly by the respondent in the two cost comparison questions, the 

version of the YSP disclosure viewed by the respondent, the verbatim text of the respondent’s 

answer to the question asking the meaning of the YSP disclosure, and the categorization of the 

correctness of this response. See Section 3.6, above, for a discussion of the categorization 

methodology. 

The version of the YSP disclosure viewed by the respondent is indicated by the following 

codes: (1) original HUD proposal, (2) revised prototype, (3) FTC YSP language. 

E-1

Number 

of cost

questions

correct 

YSP

disclosure

version 

Verbatim response to the question asking the meaning of

the YSP disclosure Response categorization 

2 3 You get a rebate when you pay a higher rate. Correct

2 1 It means that you are going to get a higher interest rate 

but it will knock off $3,100 so it would be the same as the 

other one. 

Correct 

2 1 The lender is paying the borrower for a higher interest

rate. 

Correct 

2 1 That means you have to pay a premium to get their lowest

rate. 

Correct 

2 2 You’re getting a credit for picking a higher rate loan. Correct 

2 1 The lender would reduce cost to borrower in exchange for 

giving them a higher interest rate on their loan. 

Correct 

2 1 They are giving me a rebate to give me a higher interest

rate. 

Correct 

2 1 That they are going to pay that amount of charges due to

the higher rate. 

Correct 

2 2 That if I pay a higher interest rate I get a lower settlement

cost. 

Correct 

2 2 They will reduce upfront costs but you get a higher rate 

probably. 

Correct 

2 2 It sounds like paying a higher rate so you get a reduction 

of the upfront charges. 

Correct 

2 3 It means I would get a lower interest rate if I wanted to 

pay their charges for the loan origination fees. 

Correct 

2 2 The payment to you offsets the cost of a higher loan rate. Correct 

2 1 Well it sounds like I might be paying a higher rate but

they’re trying to reduce the amount less out of pocket fee. 

Correct 

2 1 That because the interest rate is higher that they will give 

me more money. 

Correct 

2 1 They’re giving me a credit for accepting a higher interest 

rate but it’s the same as the rate on the other loan. That’s 

it. 

Correct 

2 3 That you only get a rebate if you’re paying a higher

interest rate. They give it to you to offset it. 

Correct 

E-3
Number 

of cost

questions

correct 

YSP

disclosure

version 

Verbatim response to the question asking the meaning of

the YSP disclosure Response categorization 

2 3 It means that if I didn’t want to pay any upfront fees, I

could get a higher interest rate, and if I do want to pay the 

upfront charges, the interest rate would lower. At a lower 

interest rate, depending on the rate, it maybe cheaper to

pay the upfront fees over the life of the loan. 

Correct 

2 3 I get a discount if I’m paying a higher interest rate. 

That’s it. 

Correct 

2 1 Looks like the lender of the loan is going to give you a 

refund for a high interest rate. That’s all. 

Correct 

2 3 If I go with a higher interest rate then I get $2,500

upfront. I could probably cut down on my closing costs. 

Correct 

2 3 If they can charge you more in the long run then they’ll 

give you a discount upfront. That’s it.

Correct 

2 3 It means your paying a high interest rate, which helps 

reduce upfront costs. 

Correct 

2 2 The interest charges on the loan will lower the payment 

you put upfront. 

Correct 

2 2 If you want a lower interest rate you will pay more for a 

service charge. 

Correct 

2 3 Another loan is available for a lower option. A 5.5% or

5.2% loan will cost you more. 

Correct 

2 1 Looks like the lender pays borrower to go with a higher 

interest rate. 

Correct 

2 1 It means they owe you money, and charge a higher 

interest rate. 

Correct 

2 2 The upfront charge becomes less, if you pay high interest. Correct

2 3 That means that a rebate is applicable if I am paying a 

higher interest rate. 

Correct 

2 1 The lender is going to give money to the borrower if he 

pays a higher interest. 

Correct 

2 2 For a higher interest rate the lender will reduce upfront 

charges. 

Correct 

2 1 For some reason the lender is paying you for a higher

interest rate but if the math comes out right, it doesn’t 

make much difference. 

Correct 

E-4
Number 

of cost

questions

correct 

YSP

disclosure

version 

Verbatim response to the question asking the meaning of

the YSP disclosure Response categorization 

2 1 The lender is going to give me $2,500 because I’m

paying a higher interest rate. 

Correct 

2 2 They’re offering you the $2,500 for a higher interest rate. Correct 

2 1 They want to give me $2,500 to offset the settlement cost

for a higher interest rate. 

Correct 

2 3 The money I put down upfront is less but the percentage

rate I pay for the borrowed money is higher. I will pay a 

higher interest rate on borrowed money. 

Correct 

2 1 The lender is reducing closing costs so that I would agree 

to a higher interest rate. 

Correct 

2 3 Rebate if you’re paying a higher interest. You pay a 

higher interest to get reduced costs upfront. 

Correct 

2 2 You pay an upfront charge. You pay more in the 

beginning, but less over time. Less upfront, more over 

time. 

Correct 

2 3 You get the money back if you pay a higher interest rate. Correct

2 3 You get a rebate if you pay a higher interest rate. Correct

1 1 They are paying me to go to a higher interest rate. Correct 

1 2 For a higher interest rate you save points. Correct 

1 2 If you want a lower rate you pay more money initially. Correct 

1 3 It means that I get back a little bit of money for having to

pay a higher interest rate. 

Correct 

1 3 If I’m paying a higher interest rate, I get upfront lower 

costs. 

Correct 

1 3 They’re trying to say that they’ll give me more money

back if pay a higher interest rate. 

Correct 

1 3 If I am paying more interest for the loan in order to

reduce upfront costs I get a rebate. 

Correct 

1 1 If the interest rate was high, I get money back. Correct

1 3 This rebate is applicable if you pay the higher interest 

rate. 

Correct 

1 2 Well, actually they make you pay a higher interest rate

for accepting a $3,100 rebate. 

Correct 

E-5
Number 

of cost

questions

correct 

YSP

disclosure

version 

Verbatim response to the question asking the meaning of

the YSP disclosure Response categorization 

1 2 It means that it would have a higher interest rate but I

wouldn’t have to put a bunch of money upfront. 

Correct 

1 1 It looks like they will give you money back for a higher 

interest rate. 

Correct 

1 2 They’re giving a rebate on the upfront charge but you get

a high interest rate. 

Correct 

1 3 It means I am paying a higher interest rate. It will reduce 

any upfront cost, $2,500 dollars. 

Correct 

1 1 The lender will give an upfront discount for a higher 

interest rate during the course of the loan. 

Correct 

1 3 It means that $2,500 is a credit for a higher rate of interest 

that they will be paying. 

Correct 

1 3 They are offering a rebate to reduce closing costs due to

the higher interest rate. 

Correct 

1 2 Choosing charge or credit for your specific interest rate. 

If you get a higher interest rate loan, the person who

loans you the money, your upfront charges are lower. 

Correct 

0 1 The lender is paying me back for giving me a higher

interest rate. 

Correct 

0 3 You’d only get a rebate if you pay a higher interest rate. Correct 

0 1 It means that they are going to give me money for 

accepting a higher interest rate. 

Correct 

0 3 You agree to take a higher interest rate so that they will 

help with costs. 

Correct 

0 2 To take a higher interest rate you have to come up with

less upfront closing costs. 

Correct 

0 1 It sounds like the lender will pay me for a higher interest 

rate. 

Correct 

0 2 You pay a higher rate for the lender giving you money to

reduce what you pay upfront. 

Correct 

0 3 It brings the initial charges down if you take a higher

interest rate. 

Correct 

0 3 Just what it said, you pay a higher rate over long-term

versus upfront costs. That’s it. 

Correct 

E-6
Number 

of cost

questions

correct 

YSP

disclosure

version 

Verbatim response to the question asking the meaning of

the YSP disclosure Response categorization 

0 1 Because I’m getting a higher interest rate they are taking 

money off the cost of the mortgage for me. That’s all.

Correct 

0 1 If you get a higher interest rate, you get the money back 

from it. 

Correct 

0 3 You will get money back if you pay a higher interest rate. Correct 

0 3 Because they are charging me a higher interest rate that’s

why they are making it cheaper for me to close. 

Correct 

0 3 They offer a lower interest if you want to pay higher

closing costs. 

Correct 

0 2 This is the amount of money they take off the service 

charge in exchange for charging more over a number of 

years. 

Correct 

0 3 If I’m paying a higher interest loan, I get a rebate, which 

will reduce my overall cost. 

Correct 

2 2 The lender rebating some of the charges. Partly correct: lower costs 

2 2 A rebate from the lender or loan officer to me. Partly correct: lower costs 

2 3 A rebate on the closing cost. Partly correct: lower costs 

2 3 It’s helping them with closing costs and points. Partly correct: lower costs 

2 1 The lender is helping a borrower having a lesser out of

pocket expense. That’s it.

Partly correct: lower costs 

2 2 It says that the lender has paid $3,100. That’s it. Partly correct: lower costs 

2 3 They are giving me a rebate. Partly correct: lower costs 

2 1 It means that the lender pays the borrower. That’s it. Partly correct: lower costs 

2 1 They are refunding some of the origination charges. Partly correct: lower costs 

2 1 They are giving back part of the origination charges. Partly correct: lower costs 

2 2 The lender will pay some of the origination fee. Partly correct: lower costs 

2 2 You are getting a credit from the lender. Partly correct: lower costs 

2 1 They are taking out that much money from the cost. Partly correct: lower costs 

2 2 You reduce origination charges. Partly correct: lower costs 

E-7
Number 

of cost

questions

correct 

YSP

disclosure

version 

Verbatim response to the question asking the meaning of

the YSP disclosure Response categorization 

2 3 The initial cost would cost less if this was applicable. Partly correct: lower costs 

2 1 The lender gives me $3,100. Partly correct: lower costs 

2 1 Some sort of rebate thing. Partly correct: lower costs 

2 2 I’ll pay $4,300 upfront and I get a $3,100 rebate. Partly correct: lower costs 

1 3 It means that you will get the $3,100 back upfront. Partly correct: lower costs 

1 2 It reduces upfront charges, but not the whole charge. Partly correct: lower costs 

1 2 It brings down the upfront charges you pay. Partly correct: lower costs 

1 2 It means they are giving me a credit on their service 

charge. It’s tied in with the interest rate. 

Partly correct: lower costs 

1 1 More money for the borrower. Partly correct: lower costs 

1 1 That’s called a rebate. That is preferable to me. Partly correct: lower costs 

1 2 Looks like a quick rebate to me. Partly correct: lower costs 

1 1 That’s what it would cost me but they are paying it for us. 

That’s all. 

Partly correct: lower costs 

1 2 It’s saying that there going to pay me and help me out by

charging me less. 

Partly correct: lower costs 

1 3 It just means that they’ll give you a rebate. Partly correct: lower costs 

1 2 Your upfront charges will be less. Partly correct: lower costs 

1 2 The bank on their behalf for my business, wants me to

choose them for my lender and therefore they’re willing

to put some money upfront to keep the total settlement

charges down for my business.

Partly correct: lower costs 

1 3 They would reduce the cost upfront at the beginning. Partly correct: lower costs 

1 3 They will give you a rebate for closing costs. Partly correct: lower costs 

1 2 It’s an adjustment of the origination depending on the 

interest rate. 

Partly correct: lower costs 

1 3 I don’t have to pay a lot of upfront money. Partly correct: lower costs 

E-8
Number 

of cost

questions

correct 

YSP

disclosure

version 

Verbatim response to the question asking the meaning of

the YSP disclosure Response categorization 

1 1 To me, they will give money back after the loan is 

completed.

Partly correct: lower costs 

1 1 The mortgage company was going to credit me. Partly correct: lower costs 

1 2 The person lending me the money pays upfront those 

charges. 

Partly correct: lower costs 

1 2 Whoever ‘s loaning me the money, they pay the $2,500, 

which will lessen the upfront charge. 

Partly correct: lower costs 

0 3 You don’t have to have as much money upfront for your

origination, but you get a rebate and some people don’t

care for that. 

Partly correct: lower costs 

0 1 The money is returned to the borrower. When do you

receive your money? 

Partly correct: lower costs 

0 2 This reduces the amount that I would have to pay upfront

in the beginning. That’s it. 

Partly correct: lower costs 

0 3 It will be cheaper in the beginning and better if you 

decide to sell your house.

Partly correct: lower costs 

0 3 Less out of pocket. Partly correct: lower costs 

0 2 The services charges are a lot less, and the settlement

costs are the same. 

Partly correct: lower costs 

2 3 Counting on the higher rate. Partly correct: higher rate 

2 2 You opted for high interest. Partly correct: higher rate 

2 3 A higher interest rate to the borrower. Partly correct: higher rate 

2 3 Maybe my rate would go up. I don’t know why. Partly correct: higher rate

2 1 If you borrow money you get a higher interest rate. Partly correct: higher rate

1 1 The interest rate is going to be higher for me because I’m

the borrower.

Partly correct: higher rate 

1 3 It’s not good. You pay a higher interest rate. Partly correct: higher rate 

1 1 The person who I ask for money charges me more for 

interest. 

Partly correct: higher rate 

0 1 That you are going to be paying a higher interest. Partly correct: higher rate

0 1 Higher interest. Partly correct: higher rate 

E-9
Number 

of cost

questions

correct 

YSP

disclosure

version 

Verbatim response to the question asking the meaning of

the YSP disclosure Response categorization 

0 1 That I could qualify for a lower interest rate. Partly correct: higher rate 

2 1 It means they start out with higher origination charges 

then give you a partial refund of the money depending on

what the interest rate is. 

Partly correct: other 

2 3 That means that it applies to the specific interest rate. Partly correct: other 

2 2 It means settlement costs are going to be different. That’s 

it. 

Partly correct: other 

2 1 The higher the interest rate the higher the payment. Partly correct: other 

2 3 It’s a less overall cost. Partly correct: other 

0 2 To me it means that the amount will be less according to

what interest rate you choose. 

Partly correct: other 

0 1 It means the payment varies with the interest rate. Partly correct: other 

2 2 It means it gets rolled into the total. Wrong

2 3 They are going to work it into the payment somehow. Wrong

2 3 That it’s re-mortgaging the settlement charges. Wrong

2 2 Putting the $2,500 in the loan. Wrong

2 3 I would receive $2,500 if I paid a higher interest for a 

shorter time. 

Wrong 

2 1 You pay higher interest and in the long run you pay it off

quicker. 

Wrong 

2 3 If I don’t fit in with the rate I would end up paying the 

difference. 

Wrong 

2 2 They have reduced the service charge. It would be paid

off sooner. 

Wrong 

2 2 Less for a lower interest rate. Wrong 

2 3 Pay a higher cost to pay in future. Wrong 

2 3 That looks like paying points on a long-term loan. Wrong 

2 2 Closing cost. Wrong

2 3 The lender borrows me money, pays me back later. Wrong 

E-10
Number 

of cost

questions

correct 

YSP

disclosure

version 

Verbatim response to the question asking the meaning of

the YSP disclosure Response categorization 

2 2 They’re waiving the upfront costs. Wrong 

2 3 It means that the charges for the loan origination stays at 

$4,300 and is expensive on “G”. 

Wrong 

2 1 That’s what the payment is going to be. Wrong 

2 2 The lender scales the interest rate and sells these out. The

lender had a higher adjustment rate so you pay what’s on

the form. It takes a lawyer to work it out. 

Wrong 

2 3 It means it takes a longer time to pay it. The loan itself. Wrong

2 2 After the loan is processed they would give you the 

credit, an application fee I would think. 

Wrong 

2 2 It means I’m paying a greater interest rate because of my

financial situation, but the lender is able to reduce upfront

costs as enticement to take the loan. 

Wrong 

2 1 It has to do with interest rate whether or not they pay or I 

pay.

Wrong 

2 1 They ‘re saying that their origination fees are high and 

they are willing to lower it. They will lower the interest 

rate. 

Wrong 

2 1 The interest rate on this loan would be cheaper than

originally. They would give you a break on the interest

rate 

Wrong 

2 2 Those are points. You want a lower interest rate. Wrong 

2 2 The lender will pay more to make the payment less. This 

isn’t bad because the lower the rate the better. 

Wrong 

2 2 That the lender paid on behalf of us for a lower rate. Wrong 

2 1 If I borrow from the people who are giving me the loan I

pay nothing but the lender gives me a high interest rate at 

the end. 

Wrong 

2 1 Extra points. Wrong

1 1 They are going to pay me if my rate is more than 6%. Wrong

1 2 To me it means if they are going to charge you a higher 

rate in the long run it will cost you less. 

Wrong 

1 2 You need less money for a down payment. Wrong 

E-11
Number 

of cost

questions

correct 

YSP

disclosure

version 

Verbatim response to the question asking the meaning of

the YSP disclosure Response categorization 

1 2 No upfront charges. Wrong 

1 1 It’s prepaid interest. Wrong

1 2 It’s part of there service charge or they are knocking a

part of their service charge off to get you in the door. 

Wrong 

1 2 That you would have to pay upfront. Wrong 

1 3 I pay higher than 6% for the chance to get money upfront. Wrong 

1 2 That means that they are buying down the interest rate on

the loan, or they pay the points. 

Wrong 

1 1 The number of points you have. Wrong

1 1 Possibly my interest rate will be higher than the 6% 

quoted here. Nothing else. I don’t know. 

Wrong 

1 2 For a single rate you’re not incurring the interest. If you

pay upfront now you are free and clear. 

Wrong 

1 2 It seems they want to invest my money for their purposes. 

That’s it. 

Wrong 

1 2 Agent and lender split 6% of the loan amount. Lender is 

reducing buyer’s cost by giving some of his points, which 

makes loan “V” better than “M”. 

Wrong 

1 2 That if I go to a higher interest rate they reduce the first 

payment I have to pay. It’s a service charge. 

Wrong 

1 1 Child is dependent or anyone else living with you. Wrong

1 2 That means that they are going to deduct $2,500 from the 

loan. 

Wrong 

1 2 They are basically prorating the interest rate for us to

make it more affordable. They’re reducing the price to

make it competitive. 

Wrong 

1 1 The down payment. Wrong 

1 1 Less interest. Low interest. That’s it. Wrong 

1 1 That you pay more and get more. Wrong 

1 2 You have to pay points upfront for your interest rate. 

Sometimes a higher interest rate will be better in the long

run. 

Wrong 

E-12
Number 

of cost

questions

correct 

YSP

disclosure

version 

Verbatim response to the question asking the meaning of

the YSP disclosure Response categorization 

1 2 It is an attempt to get your interest rate lowered. Wrong

1 3 The services and title insurance money. Wrong

1 2 The price someone pays for the privilege of choosing my

interest rate. A higher interest rate loan would mean that 

your mortgage broker charges would be higher. So in

order to get the business the broker gives you credit to

reduce out of pocket expenses. 

Wrong 

1 1 No charges for the borrower and they are taking away 

from a highest interest rate. 

Wrong 

1 2 You use charge or credit for a specific rate. If you have

higher interest rate, you pay higher upfront charges. 

Wrong 

1 3 You’re buying the rate down. Wrong 

1 1 How much you are borrowing. Wrong 

1 2 Sounds like the lender pays cost in your behalf, so that

the interest rate will be lower. 

Wrong 

0 3 It means that maybe I don’t have good credit so I would 

have an extra point or they would build the closing costs 

into the mortgage. 

Wrong 

0 2 They’re paying a piece to get a lower interest rate so they 

can possibly have a higher interest rate. 

Wrong 

0 2 They are paying the upfront charge so you don’t have to. Wrong 

0 1 It means that the interest rate goes up even though you

get a rebate. You the borrower lose money in the end.

Wrong 

0 3 Basically they are charging me $3,200 for origination and 

try to raise my interest rate in order to correct that fee to

$700. The other one is $700 anyway 

Wrong 

0 1 The borrower pays a higher interest rate versus me paying

one. 

Wrong 

0 1 I think that’s what they would charge for a higher interest

rate if that’s what you want. 

Wrong 

0 1 I don’t have to pay anything to borrow. Wrong 

0 1 Not much, it just appears on the long run. They want 

more money from you. 

Wrong 

E-13
Number 

of cost

questions

correct 

YSP

disclosure

version 

Verbatim response to the question asking the meaning of

the YSP disclosure Response categorization 

0 3 Basically is that person came in with a higher interest rate 

and they were getting a lower one, that’s when that would 

apply.

Wrong 

0 1 The bank is lending me this. Wrong 

0 3 The service charges. Wrong 

0 3 It means that you are taking money out of the loan. Wrong 

0 1 When you borrow, the beginning payment is zero. Wrong 

0 1 The lender gets a lower rate of interest and I get a lower 

payment.

Wrong 

0 3 That it’s like buying points to get a lower interest rate. Wrong

0 1 That I would pay $3,100 to the lender for a higher 

interest. 

Wrong 

0 1 The borrower gets money back for a lower interest rate. Wrong 

0 1 Paying for a lower rate. Wrong 

0 3 It means you agree to pay a higher APR in order to pay

less points upfront. 

Wrong 

2 3 It doesn’t make any sense to me. Did not know 

2 1 Not a clue. Did not know 

2 2 Absolutely nothing. I don’t like the way that’s worded. Did not know 

2 1 I don’t know. Did not know 

2 1 I really could not tell you. Did not know 

2 1 I’m not sure. Did not know 

2 1 I haven’t a clue. It just says they are giving it back to you

in the end.

Did not know

2 2 It does not mean anything. I’m confused by it. Did not know 

2 3 It says it’s been adjusted and I don’t know if it went up to

a higher rate. Is this specifically being given?

Did not know

E-14
Number 

of cost

questions

correct 

YSP

disclosure

version 

Verbatim response to the question asking the meaning of

the YSP disclosure Response categorization 

2 1 That’s what I’m not sure of. All the numbers are the 

same but it says for a higher interest rate. Seems to me

the interest rate should be higher. 

Did not know

2 2 I don’t know. When we did it last time I didn’t

understand it at all and I’m really not sure I understand it 

now. I trusted the real estate lady and the loan people to 

treat me right. 

Did not know

2 1 I don’t know. I hope whomever I get it from will explain

in words I can understand what it means. 

Did not know

2 3 I don’t know. I would hope the people doing the loan

would explain it to me. 

Did not know

2 2 I don’t know. I have to find out about that, they need to

be more specific. 

Did not know

2 3 A whole bunch of gobble. I don’t know. That’s it. Did not know

2 1 I don’t understand it. That’s what I don’t understand. Did not know 

2 3 Nothing. Did not know

2 2 I don’t know what that means. It doesn’t make any sense. Did not know

2 2 I’m not sure. Did not know 

2 1 The point is not clear. Did not know 

2 2 I am really not sure. Did not know 

1 3 I don’t know. Did not know 

1 3 Nothing. Did not know

1 1 I don’t know. Did not know 

1 3 This worries me because it’s not in black and white. Did not know 

1 2 I have no idea. Did not know 

1 3 I’m not really clear about it. Did not know 

1 1 It’s more confusing than anything else. Did not know 

1 2 I don’t understand it. I don’t know why they have it. If 

they are going to pay it, why put it on there. 

Did not know

E-15
Number 

of cost

questions

correct 

YSP

disclosure

version 

Verbatim response to the question asking the meaning of

the YSP disclosure Response categorization 

1 2 I’m a little confused Did not know 

1 3 You get money back for higher interest but on these loans 

the interest rate is the same. So I’m really not sure what 

it means. 

Did not know

1 3 No idea. Did not know 

1 1 I don’t know. It’s just the rate dependent on a payment. Did not know 

1 2 I have no idea. It’s very unclear. Did not know 

1 1 No idea. Did not know 

1 1 I am not sure. Did not know 

0 3 I don’t know. Did not know 

0 2 I don’t know. Did not know 

0 1 I have no idea. Did not know 

0 2 I have no idea. We’ve never seen that before. Did not know 

0 2 OK, so this is paid by the lender, which reduces my

payment. But I’m still not clear if it’s paid by the lender. 

They’re going to get it back. So the interest rate is going

to be higher, so you’re going to be paying more. 

Did not know

0 3 I don’t know. Did not know 

0 2 I’m not really sure. Did not know 

0 3 I don’t know. Did not know 

0 3 I don’t know. Did not know 

0 2 No idea. Did not know 

0 2 It’s confusing and not clearly understood. Did not know 

0 2 I’m not really sure. Did not know 

0 1 I don’t know the answer for this question. Did not know 

2 3 If I choose to have a higher interest rate then what they

would offer in order not to pay or reduce costs. 

Ambiguous 

E-16
Number 

of cost

questions

correct 

YSP

disclosure

version 

Verbatim response to the question asking the meaning of

the YSP disclosure Response categorization 

2 2 I think it doesn’t make a difference. Ambiguous 

2 1 You pay points to pay down the interest rate. Ambiguous 

2 3 If you are paying a higher interest rate you are getting an

overall reduction. The interest rates are the same and the 

terms are the same for both. 

Ambiguous 

2 3 It means that the loan is saving me money by taking a

higher interest rate. 

Ambiguous 

2 2 You are choosing to take a higher interest rate for the

loan to reduce what you pay upfront. In the long run this 

costs more. 

Ambiguous 

2 1 Depending on the interest rate we agree on, it would be 

cheaper. 

Ambiguous 

2 3 If you were paying a high interest rate then you would get

the rebate. If you’re not, you wouldn’t. 

Ambiguous 

2 3 If you take a high enough interest, they’ll give you a 

$2,500 rebate.

Ambiguous 

2 3 The cost is higher because of the interest rate. Ambiguous 

2 3 I don’t care about a rebate. I just want to pay less in

upfront charges. 

Ambiguous 

2 3 They’re trying to make it appear as the same to save 

dollars. 

Ambiguous 

2 3 It’s like points you pay upfront to get a lower interest 

rate. 

Ambiguous 

2 2 They are making it seem that I’m getting something 

extra. The charges are being shifted. 

Ambiguous 

1 3 The note is higher, rebate given if you meet certain

criteria. 

Ambiguous 

1 1 The interest rate is the same. Ambiguous 

1 1 Why would I as a borrower want to pay a higher interest

rate?

Ambiguous 

1 3 You don’t have to put down as much. Ambiguous 

1 1 You pay more on the loan. Ambiguous 

1 1 That I had to pay money to lower my interest rate. Ambiguous 

E-17
Number 

of cost

questions

correct 

YSP

disclosure

version 

Verbatim response to the question asking the meaning of

the YSP disclosure Response categorization 

1 1 What the lender’s going to be paying to the borrower. 

They were requesting it at a higher interest rate, the 

borrower was requesting a higher interest rate. 

Ambiguous 

1 2 It seems if you took a higher mortgage, the lender would 

pay and reduce the upfront charges.

Ambiguous 

1 2 If I accepted a higher loan, I’ll pay less out of my pocket 

but more in the long run. That’s it. 

Ambiguous 

1 3 If the borrower is paying a higher interest, then the rebate

makes the rates good. 

Ambiguous 

1 1 One is less than the other one. Ambiguous 

1 2 Anyhow I am not agreeing as practically it is not so. Ambiguous 

1 2 The lenders will get their money either way. Ambiguous 

1 2 It is just like paying points. Ambiguous 

1 3 An adjustment can be made on the loan and cost you

more money. You will get a rebate if you pay higher 

costs. 

Ambiguous 

1 3 I have to pay for it in the long run. Ambiguous 

1 3 I’m going to be putting more down in the beginning but

paying less. 

Ambiguous 

1 3 It’s worth it to pay more and reduce the costs and get a 

lower rate. 

Ambiguous 

0 3 You’re paying more but only say they’re giving more 

back. 

Ambiguous 

0 3 You only get a rebate if you are paying a higher interest

rate. If you pay a higher interest rate you have to do it if 

you reduce amount paying. 

Ambiguous 

0 3 The rebate is not definite to me. It makes me feel uneasy. Ambiguous 

0 2 In my own experience, it hasn’t meant much. Ambiguous 

0 1 That means they give you money to help with the

settlement cost but somehow they will get you for it. 

Ambiguous 

0 2 That means that it’s more money than I would want to

pay. I don’t think you should pay that. 

Ambiguous 

E-18
Number 

of cost

questions

correct 

YSP

disclosure

version 

Verbatim response to the question asking the meaning of

the YSP disclosure Response categorization 

0 3 Although I’ll save a couple hundred at the beginning,

over 30 years I will spend more money because of the 

higher interest rate. 

Ambiguous 

2 2 To me they are trying to confuse the consumer. Felt cheated 

1 3 That’s how much they knock off of the loan to help

reduce up front costs. I don’t like the way they word

things, they’re messing with my brain.

Felt cheated 

1 3 It means they are going to rake me over the coals, cheat 

me.

Felt cheated 

1 1 It means I’m getting screwed. Somehow I’m going to

end up paying more money. 

Felt cheated 

1 2 It seems like it is unfortunately double-talk. It is very 

unclear. It is deliberately done to confuse. 

Felt cheated 

0 1 It means I got screwed if I go with that one on loan “G”. 

They are charging me too much. 

Felt cheated 

E-19