A guide to mortgage broker fees and compensation
Each year home buyers trust tens of thousands of mortgage brokers to guide them through the most important financial transaction of their lives — securing a mortgage loan. In return for their expertise and service, mortgage brokers are compensated with broker fees. Whether borrower-paid or lender-paid, broker fees come in a variety of forms. Here are some of the most common.
Loan origination fees
Mortgage brokers typically charge a loan origination fee that ranges from 1% to 2% percent of the mortgage loan amount originated. Depending on the size of the mortgage, this can be a substantial sum of money, and some lenders allow borrowers to roll this into the total cost of the mortgage to offset a large upfront payment for borrowers.
Upfront fees
Most upfront fees are a flat rate that a mortgage broker charges a borrower to originate a loan. Typically, brokers charge an upfront fee when financing jumbo loans to stay competitive with the origination fees charged by mortgage loan officers. These fees can be paid to brokers before or at the time of closing.
Loan administration fees
Mortgage brokers have the option to charge a loan administration fee to cover the administrative expense of processing a loan. Many borrowers though — especially ones with strong credit profiles — will negotiate to have these fees waived.
Additional considerations
In the wake of the 2008 housing market crisis, Congress enacted the Dodd-Frank Act to prevent mortgage brokers and lenders from charging exorbitant fees and adopting compensation models that incentivize exploitative practices, such as yield spread premiums. Mortgage brokers today cannot charge hidden fees, fees impacted by a loan’s interest rate or fees greater than 3% of the loan amount. Mortgage brokers also may not be paid for steering borrowers to an affiliated business, nor may they be paid by both borrowers and lenders.
It is critical that mortgage brokers adhere to these guidelines any time they negotiate fee structure with either borrowers or lenders. Understanding mortgage broker compensation models and the regulations that govern how brokers may charge for services is foundational to operating compliantly and profitably as a mortgage broker.
Ernst® Fee Service by Black Knight assists mortgage brokers in accurately and compliantly communicating broker fees to homebuyers. Integrations with core lending systems streamline delivery of Loan Estimates, Closing Disclosures and other fee data and calculations for ease of business and a better borrower experience. Get in touch with the experts at Ernst and let them give you the complete 411 on broker fees.
The information provided herein is for general informational purposes only, and does not, nor is it intended to, constitute legal advice.
