United States
Hong KongHow loan originators get paid
Most originators are paid basis points on volume, sometimes against a draw. Regulation Z prohibits pay varying with a term of the transaction and prohibits being paid by both the consumer and another party.
Understanding this matters twice: for your own career, and because the rules around it are examined.
Basis points
A basis point is one hundredth of a percent. An originator paid 100 basis points earns 1 percent of the loan amount.
So volume is the variable. Two originators on identical plans earn very different amounts depending on what they close.
What the rules forbid
| Rule | Effect |
|---|---|
| 12 CFR 1026.36(d)(1) | Compensation may not vary with a term of the transaction |
| 12 CFR 1026.36(d)(2) | An originator paid by the consumer may not also be paid by anyone else |
| 12 CFR 1026.36(e) | No steering to a better-paying transaction that is not in the consumer's interest |
Together those ended the arrangement where an originator earned more for delivering a higher rate while also charging the borrower.
What is permitted
- A percentage of the loan amount
- A fixed salary or hourly rate
- Bonuses on volume or quality measures
- Payment from the creditor rather than the consumer
The distinction is consistent. Pay linked to how much business is fine. Pay linked to what is inside the loan is not.
A transaction is one or the other and cannot be both. That is the dual compensation rule, and it is the reason a plan has to be chosen per transaction rather than mixed.
Draws
An advance against commission you have not yet earned, recovered from later earnings. Useful while building a pipeline and a debt if the pipeline does not arrive. Volume is the variable.
Ask whether a draw is recoverable and over what period, before accepting a role that offers one.
Common questions
How are mortgage loan originators paid?
Usually in basis points on the volume they originate, sometimes against a draw that is recovered from later commission.
What is a basis point?
One hundredth of a percent. 100 basis points is 1 percent of the loan amount.
Can pay vary with the interest rate?
No. Compensation may not vary with a term of the transaction under 12 CFR 1026.36(d)(1).
What is dual compensation?
Being paid by both the consumer and another party on the same transaction, which is prohibited.
Should I take a role with a draw?
Possibly, but ask whether it is recoverable and over what period. A recoverable draw is a debt if volume does not arrive.