As with any business, the sales process is critical to the success of mortgage bankers and brokers. While mortgage banks and brokers do not earn commissions as part of their regular business functions, they do pay commissions to loan originators, or loan officers, who perform the sales function for them. As with any sales job, the loan originator's success depends heavily on her sales prowess, and she is rewarded for a job well done.
Bankers vs. Brokers
It is important to note that there is a significant difference between a mortgage banker and a mortgage broker. Mortgage banks and depository banks obtain loans for their own benefit while brokers are tasked to find the borrower the best deal for the customer. Under law, there are significant and complicated distinctions between how bankers and brokers can be compensated, but the intent of the law is to allow compensation only on the basis of the loan amount.
Salary vs. Commission
Loan originators for banks or call centers are often compensated by salary and possibly a small commission. Loan originators for mortgage banks and brokers generally earn most, if not all, of their income through commission. The distinction is the responsibility for finding the customer. Call center and bank originators may be provided leads and have the benefit of the bank's relationship with the customer, while fully commissioned loan originators must independently attract referrals, discover leads and develop the customer relationship.
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How Commissions Are Established
Prior to the passage of the Frank-Dodd bill, effective April 1, 2011, commission was sometimes a flat fee based on the loan amount, but it was more often based on the revenue the loan originator generated. The loan originator and the customer negotiated a price and the mortgage company shared the revenue with the loan officer. The new law requires that loan officers are paid based on the loan amount only rather than revenue generated for the company.
Typical Commission for a Loan
Commission generally ranges from 50 to 100 basis points. (One basis point is one-tenth of a percentage point.) A $100,000 loan with a 50 basis point commission pays the loan officer $500. The loan officer and the mortgage company negotiate a commission rate as part of the employment process, and the loan originator earns a set commission on all loans based on that agreement.