A new law was passed April 2011 that changes how loan officers are compensated for a home purchase or refinance transaction. There are two options for borrowers. Borrowers have the option of paying for the cost of originating a mortgage (borrow paid) or have a credit be issued by the lender (lender paid).
With a lender paid option, the lender will pay a set fee or percentage determined by the mortgage broker for each transaction. It is a set percentage and cannot change based on the loan amount. The borrower can pay a discount fee if they want to lower the interest rate. The advantage for the borrower is this creates a more equal playing field for all loan officers. The disadvantage is the loan officer can no longer adjust their compensation to earn business. The compensation paid by the lender to the loan officer is a set percentage of the loan and cannot be changed.
With a borrower paid option, the loan officer must be an employee or paid a set amount or hourly fee. Like real estate agents and Realtors, many loan officers are independent contractors, unless they originate FHA loans. Because of this new rule, many mortgage companies may not offer this option since their loan officers are not setup as employees.
Anytime there is a legislation change, there are always unintended consequences. The purpose of passing this new law was to eliminate much of the mortgage fraud that took place in the past. Unfortunately, consumers will have fewer choices in shopping around for a mortgage. Many mortgage brokers won’t provide a borrower paid option, and with the lender paid option, the loan officer is not able to lower their compensation to earn business for a client.
If you have any questions, please call us at 512-257-9836. Our office provides sales, leasing, property management, and mortgage services.