A very common question posed by borrowers relates to compensation of the MLO, or mortgage loan originator. Who pays them, and how do they make money.
Let’s use the following scenario as a springboard for understanding what we are talking about. Say the loan is $300,000 and the agreed amount of compensation between the borrower and service provider is 2%. This means the ‘fee’ or price for service is $6,000.
In large banking institutions the MLO is typically paid a salary and a small amount of commission commonly referred to as bps, or basis points. For an MLO working in a retail bank (like Chase, Wells, Citi,etc.) the MLO would earn a salary and benefits for being a bank employee, and about 35 bps, roughly $1000 in the above example.
An MLO working in a broker shop is likely splitting the fee with the employer evenly. In the above example they would each gross about $3,000. The more loans the MLO closes the more the MLO earns. The reason for the split is obvious, the employer provides many strengths that make the platform for the MLO to operate very smooth. He provides software processing, office space, internet, and all back office support etc. Since the new compensation laws went into effect the compensation works a bit differently.
Finally there is an MLO who works for a correspondent banker or table funder. These are usually small to mid size shops that have lines of credit that they draw on in order to lend and close in their own name. They in turn package groups of loans together as pools and sell them off to secondary markets where they earn a premium on that sale as well. These MLO have a similar compensation structure as their counterparts in the broker capacity.
One key difference between an MLO in a broker shop versus an MLO in a banker capacity is that the broker must disclose his fee earning and the banker does not. The banker does not have to disclose YSP (yield spread premium) or SRP (service release premium) earnings.