Mortgage Brokers And How Mortgage Brokers Get Paid
Mortgage brokers, also known as mortgage loan originators and mortgage loan officers, are licensed professionals who help mortgage loan borrowers qualify for mortgage loans and find a direct lender where the mortgage loan borrower meets their lending guidelines. Mortgage brokers are not lenders. They are brokers who have wholesale relationships with wholesale mortgage lenders. Mortgage brokers can have anywhere between one to over a dozen wholesale mortgage lenders. For mortgage brokers to be able to do business with a particular wholesale mortgage lender, the mortgage broker needs to meet the qualification requirements of the wholesale mortgage lender and the wholesale mortgage lender needs to approve the individual mortgage brokerage company. Wholesale mortgage lenders will review the mortgage brokerage company’s years in business, the type of business they do, the volume of business they do, and the regulatory standings of the mortgage brokerage company. How mortgage brokers get paid? Mortgage brokerage companies get paid by wholesale mortgage lenders via yield spread premium or commission.
Yield Spread Premium Is How Mortgage Brokers Get Paid
Mortgage brokers do not get paid by mortgage loan borrowers. How mortgage brokers get paid is by wholesale mortgage lenders after the mortgage loan borrower’s home loan gets closed and funded. The commission of a mortgage broker, the yield spread premium, needs to be disclosed by law on the Good Faith Estimate and/or Loan Estimate as part of the origination charges even though the mortgage broker gets paid by the wholesale mortgage lender and not the consumer. A mortgage broker is not allowed to accept any upfront fees from mortgage loan borrowers. There is a lot of work in preparing, processing and underwriting a mortgage loan borrower’s mortgage loan application. The mortgage brokerage company has overhead just like any other brokerage company. Secretaries, mortgage openers, and mortgage processors as well as the office expenses needs to be paid by the owner of the mortgage brokerage company. Unlike law firms or other professional consulting companies, mortgage brokers are not allowed to charge a retainer or upfront fees from a mortgage loan borrower. A mortgage loan borrower can cancel a mortgage loan application at any time prior to closing. Many hours of work can be performed by a mortgage broker and if the mortgage loan borrower cancels the mortgage application prior to funding and decides to go with a different mortgage company, the mortgage broker has just wasted all of his or her time and costs of processing the loan without a single penny from the mortgage loan borrower. However, if the mortgage loan borrower’s mortgage loan application gets a clear to close and gets funded, the mortgage brokerage company and the individual mortgage broker gets paid. This is how mortgage brokers get paid: Once the mortgage loan borrower loan closes and funded.
Maximum On How Mortgage Brokers Get Paid
Prior to the 2008 Real Estate and Mortgage Meltdown and prior to the SAFE ACT and Dodd Frank Mortgage Laws, there was no maximum on how mortgage brokers get paid. Some mortgage brokers charged 10% commission or yield spread premium and got away with it, especially on sub-prime loans. However, the whole mortgage industry went through a major overhaul. Mortgage brokers now need to take mandatory pre-licensing courses, take national and state exams, go through federal and state criminal background checks, and go through credit checks before they can get their mortgage loan originator’s licenses. There are also maximum fees that a mortgage loan borrower can get charged. The maximum origination fee a mortgage loan borrower can get charged is no more than 3% which includes processing and underwriting fees from a mortgage broker. Since mortgage loan borrowers normally get charged a $1,000 mortgage underwriting fees, most mortgage brokers who want the maximum compensation can only charge 2.75% yield spread premium. The commission, yield spread premium, is paid for by the wholesale mortgage lender and not the mortgage loan borrower. Each mortgage brokerage company can decide how much their yield spread premium will be and notifies the wholesale lender. There are some mortgage brokerage companies that only charge 1.5% yield spread premium and that is the agreement they have with the wholesale mortgage lender. The higher the yield spread premium the mortgage broker has with the wholesale mortgage lender, the higher the mortgage rates will be for the mortgage loan borrower. Mortgage brokerage companies who want to offer the lowest possible mortgage rates for their mortgage loan borrowers have the lowest yield spread premium agreement with their wholesale mortgage lenders. Many mortgage loan borrowers need the services of mortgage brokers because they have multiple wholesale mortgage lenders where they can go to, unlike mortgage bankers where they normally can only follow their mortgage banking company’s lending guidelines. Mortgage brokers, like other professionals, need to get paid and most mortgage brokers who specialize in hard to do financing will charge the maximum 2.75% yield spread premium.
Yield Spread Premium Agreements Between Mortgage Broker And Wholesale Lender
When a mortgage brokerage company enter into the compensation, or yield spread premium, agreement with the wholesale mortgage lender, the mortgage brokerage company decides on what yield spread premium compensation package they want. The lower the yield spread premium, the lower the mortgage rates for the mortgage loan borrower. The higher the yield spread premium, the higher the mortgage rates for the mortgage loan borrower. Due to anti-steering rules and regulations, once you set a yield spread compensation package with a wholesale mortgage lender, that agreement is in effect for a set amount of time and mortgage brokers cannot flip flop with yield spread premium. Everyone originating mortgage loans in that particular mortgage brokerage company needs to stick with that yield spread premium. For example, if a mortgage brokerage company agreed on a 2.75% yield spread premium agreement with a wholesale mortgage lender and that mortgage rate is 4.75% where if they chose a yield spread premium compensation of 2.0% the mortgage rates for their borrowers would have been 4.0%, a mortgage broker cannot decide to choose the 2.0% yield spread premium for a particular client because he wants to give that client a better rate and cut his commission. Once the owner of the mortgage broker company decides on a particular commission rate he or she wants to stay on, that commission rate will stay until they decide to change the comp plan which they can do.