Can Mortgage Brokers Dilute Their Commissions?????

[Christian D.]

I have a mortgage related question regarding a property I am currently in contract with and hopefully set to settle on in the next couple of weeks.

I am purchasing a duplex under an FHA loan (5% down) with the expectation that I will be living in one of the units as my primary residence. I am about 2 months into the process, we received conditional approval, gone through the appraisal, inspection, etc.

This week I received an updated LE (loan estimate) from the lender with almost a $25K increase on the "total cash to close" funds needed to bring to closing from the previous LE that I was initially sent and have been going off of for over a month. But to make a long story short, my question is I asked my mortgage broker to dilute his commission by $5K in an effort to try to help get this loan closed since I need to come out of pocket much more then I initially anticipated and was told.

I am going to copy his response below:

""This is area where we're getting into banking regulations and not something I'm familiar with.Broker comp is set by the bank and broker and the lender pays the broker that compensation.It can also be set up as what is called consumer paid.Once the loan is disclosed. It can't change. Theses are the types of things that the CFPB and Dodd Frank regulations set up.It is supposed to protect the consumer.

I believe that's how it works.Normally when someone needs to get a credit,the lender pays the comp and the excess goes to the borrower.In your case because there was only so much yield or credit that the loan was paying, I reduced our company comp to give you more credit. Whether I will be permitted to do that again, I don't think so, but I'm not sure .This is between the lender and our company. It's not up to me certainly. I will find out.""

Any mortgage brokers familiar with this? Can mortgage brokers dilute their commissions? I know it can be done for real estate brokers because both real estate brokers involved in this transaction forfeited approximately $10K between the both of them to get this deal closed on the front end (it's a rather large loan just under $1MM).

Any insight into this would be greatly appreciated.

[Chris Mason]

Originally posted by @Jay Hinrichs:

@Chris Mason  can you shed some light on this for this person.. you deal with SF bay area mortgages that are the same values as this..

 Loan Originator Compensation Rule (c. 2013) prohibits the practice of MLO compensation varying by specific borrower and loan terms/conditions. The person you interact with must get paid the same on your transaction as everyone else's. 

Basically, back in the day, the self esteem of the individual borrower determined the deal they got, since the MLO could just tack a pre-payment penalty, make it an ARM, bump the rate, etc, and get paid more for every little "feature" they shoved in (so if the 'true' rate bump for your 680 FICO was 0.25%, they'd bump it 0.75% and get paid more for the 0.5% difference... in this world loan shopping obviously made a huge difference). This led to a lot of problems, because they accidentally ended up paying MLOs more for loans the more likely they were to default (devil's advocate: they were paying for what "sophisticated" people on Wall Street demanded).

That's all gone with the MLO Comp Rule, and the MLO must get paid the same regardless of loan terms (and mysteriously now everything is 30YF and no fancy "features" LOL), but that cuts both ways -- the MLO can't give himself a big fat bonus on just your loan, nor can the MLO take a pay cut just on your loan.