“Seek first to understand, then to be understood.”
— Stephen R. Covey
For a large number of consumers who get a mortgage, the decision of how much you will actually pay for the mortgage company to get you a loan resides almost completely with the loan officer.
Which is only one of the reasons that when shopping for a mortgage, lenders don’t matter – loan officers do.
Two of the biggest drivers behind the amount that you will pay for your mortgage are:
- What type of lender does your loan officer work at
- How is your loan officer paid
If Your Loan Officer Works For A Mortgage Bank or Mortgage Broker
For loan officers who work at mortgage banks (also sometimes referred to as “correspondent lenders”) or mortgage brokers, the vast majority of them are paid on straight commission. There are probably almost as many different loan officer compensation plans as there are lenders – but it is probably generally safe to categorize the pay of this group of loan officers as a “percentage of total revenue generated on a file”.
Or, simply put – if a loan officer helps you with your mortgage and the total fees and yield spread premium add up to be $4,000 and the loan officer is on a “80% split” the loan officer stands to make 80% of $4,000 or $3,200.
The advantage to working with a loan officer who works at a mortgage bank/broker is that they have access to many different lenders and are usually not required to only sell one lenders products. Another advantage to working with a loan officer who works at a mortgage bank/broker is that they have much more flexibility on the amount of fees that you are charged.
So it seems that logically, if on average, these loan officers probably work with 10-20 lenders on a regular basis this means that they can find you the lowest rate with the lowest fees, right?
One disadvantage to working with loan officers at these mortgage bankers/brokers is that no matter what, they must “originate at a profit” or make money from the origination process in order to stay in business.
If Your Loan Officer Works For A “Large FDIC Bank”
Many of the larger, nationally known banks pay their loan officers differently than the smaller mortgage banks/brokers. They will pay the loan officer a base salary and a small bonus amount based on the loan amount, not the total fees on a file.
Or, simply put – if a loan officer helps you with your mortgage and your loan amount is $200,000 and the loan officer is paid “30 bps”, the loan officer would make 30 basis points on $200,000 or $600.
One advantage to working with these loan officers is that they usually have a large brand behind them – so you have probably “heard of” the lender that they work for. Another advantage to working with these loan officers is that often times, their lender will be willing to “originate at a loss” mortgage loans so that they will have the ability to cross-sell a checking account, savings account, credit card or other bank-related products.
One disadvantage to working with a loan officer who works for a “Large FDIC Bank” is that they usually have relatively little rate and fee flexibility. Their rates and fee structures by and large “are what they are”.
Now For The “how-do-you-save-the-most-money” Question:
When getting mortgage quotes, if two of the biggest drivers behind how much you will pay for your mortgage to be originated are what type of lender does your loan officer work at and how is your loan officer paid… which one is best?
If it were me, and I were shopping for a loan officer – I would start by asking them the direct question of “how do you get paid”?
And then listen very carefully to their answer, because understanding what is going on behind the scenes can sometimes make all the difference.