How mortgage lenders are paid?

Question

If mortgage lenders are paid by commission there must be conflict of interest issues from time to time.

Devin Peterson · Answer

lender paid or borrower paid. no conflict of interest from a broker or lender conducting the service of origination which is exactly what they are paid to do.

Katherine Blazer · Answer

@Anthony Freeman They were most likely talking about lenders before 2009 and Dodd-Frank Regulations. Dodd-Frank Regulations apply to loans being used for personal property- ie your primary residence or if a loan is closed in your personal name. In very simple terms it says that we have to get paid the same amount from each bank. The idea is that I am not going to push you into a loan or bank that is not in your best interest because I make the same no matter what. However, if you open a business to hold property in, you should be versed in reading contracts, documents or are working with an attorney to do so for you. So on hard money loans and some dscr closed in your entity/business name, lenders are paid with points upfront or a margin on the rate. Not sure if this helps, or you had an example of the conflict in mind?

Timothy Hero · Answer

Mortgage lenders borrower money at x rate. The lenders that hold the note profit the difference. Most of the market sells the mortgages, and that's where the money is made.

Commission is for loan officers/mortgage brokers.

Chris Seveney · Answer

@Anthony Freeman

A lot of bad information on this post

Mortgage brokers typically get paid commissions through origination fees on the loan.

Lenders also get money from the commission then they package the loan up and securitize it and sell it.

If the broker or lender are not ethical or do not follow federal guidelines the loan known as “scratch and dent” will not be accepted by Fannie or Freddie and the lender must keep it

The lender, who most likely is a correspondent or wholesale lender - which they may borrow fthose funds for a short time, are not in the business of holding loans and therefore will sell it, for example we see around $200M a week on scratch and dent loans for sale.

These will sell at a discount so the lender typically will lose money on these deals

Thus the way it is structured and most profitable is to only originate loans that can be securitized.

Cydney Gray · Answer

Since both Real Estate Agents and Mortgage Brokers are paid commission, you could argue that both Real Estate Agents and Mortgage Brokers could give up their commission, and get the buyer a better price on the home or a better interest rate.

An alternative point of view is that Real Estate Agent and Mortgage Brokers are willing to help buyers secure property for their dream of homeownership and/or to create wealth through investment property, and we are willing to work through the entire process with no pay at all. We make sure both the property and the financing is everything that the buyer wants, and then, after several months and only if it closes, do we get paid.

Since Real Estate Agents and Mortgage Brokers get paid only commission, we MUST be good at what we do. The services we provide make or break a deal and please remember that we get paid nothing if it doesn't close. We work as hard as needed to find the best deals and the best financing with the best negotiations - for the benefit of the buyer.

Anthony Freeman · Answer

As far as getting the best rates for the homebuyer.

Anthony Freeman · Answer

No you gave great information in your response thank you.

Anthony Freeman · Answer

Yes absolutely

Anthony Freeman · Answer

Absolutely

Timothy Hero · Answer

Got it. Commission is good. It requires them to hustle to close. If they were paid salary, it wouldn't matter if your loan closed on time because it makes no difference to them.

Legally, loan officers cannot adjust the rate to pocket the different (also known as YSP/rebate).

How mortgage lenders are paid?

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