Who does your loan officer really work for?

When you sit down with a loan officer, it helps to know who pays them. A loan officer at a bank or lender works for that one company and offers that company’s loans. A Mortgage Broker is not tied to one lender and compares many wholesale lenders for the same loan. That structure decides what you will be shown, and what you will pay.

The car dealership way to think about it

At a Ford dealership, the salesperson will show you Fords. That is their job, and there is nothing improper about it. They may be very good at it, and the Ford may be a fine truck. However, they are not going to walk you across the street and tell you the Chevy fits your needs better.

A retail loan officer is the Ford salesperson. They know their company’s loans well, and they can only offer those.

A Mortgage Broker is more like someone who can get pricing from the Ford, Chevy and Toyota lots and then lay out the options side by side. You still buy from one of them, but you see the choices first.

How a retail loan officer works

A retail loan officer is an employee of a single lender. That could be a bank, a credit union or a mortgage company.

• Products: only that lender’s loan programs, rates and fees.
• Rules: that lender’s guidelines, including any extra rules it adds on top of Fannie Mae, FHA or VA (called overlays).
• Pricing: set by that lender’s rate sheet that day.

If the lender’s pricing is strong for your situation, that works well. If it is not, or if one of its overlays rules you out, the loan officer usually cannot offer you another company’s loan.

How a Mortgage Broker works

A broker is licensed to originate loans and has agreements with a number of wholesale lenders. The broker takes your application, compares programs and pricing across those lenders, and sends your loan to the one that fits.

• Products: loans from every lender the broker works with, including agency loans (conventional, FHA, VA, USDA) and non-QM loans such as DSCR or bank statement loans.
• Rules: if one lender’s overlay is a problem, we take your loan to a lender without it.
• Pricing: wholesale pricing from several lenders, compared on the same day.

Through many wholesale lenders, a Mortgage Broker reaches nearly every residential loan: conventional, FHA, VA and USDA, jumbo, renovation, construction, HELOCs, bank statement and DSCR. The one thing a broker does not offer is a bank’s in-house loans, which it keeps for its own customers.

How loan officers are paid: the federal rules

This is where much of the confusion arises. Federal rules under the Truth in Lending Act (Regulation Z) cover how anyone who originates a mortgage can be paid, whether they are a retail loan officer or a broker.

• No pay based on loan terms. A loan originator cannot be paid more because your rate is higher or because of other loan terms. This rule exists to prevent steering people into more expensive loans.
• No double pay. A loan originator cannot be paid by both you and someone else, such as the lender, on the same loan.
• No steering. A loan originator cannot steer you to a loan simply to earn more if it is not in your interest.

For brokers specifically:

• A broker is paid either by the lender (lender-paid) or by you (borrower-paid), never both on the same loan.
• The broker’s compensation has to be disclosed on your Loan Estimate, so you can see it.

A retail loan officer’s pay is usually set by their employer and does not appear as its own line on your Loan Estimate. The lender’s own margin is built into the rate and fees.

Who works for you

The structure changes two things: the range of options you see and what you pay. Polygon Research’s analysis of 2023 federal mortgage data (HMDA) found that borrowers who used an independent Mortgage Broker saved an average of $10,662 over the life of the loan compared with nonbank retail lenders, and $13,432 on VA loans, mostly through lower upfront costs. The study was supported by United Wholesale Mortgage.

With a retail lender, you are comparing one company’s options against each other. With a Mortgage Broker, one application reaches many lenders, and the comparison is made for you on the same day.

Because we are a Mortgage Broker, we compare many lenders on the same day, which can bring better pricing and fewer roadblocks than one lender can offer. That is also why we built the Mortgage Plan, which puts each option side by side so you can see the differences in payment, cash to close and long-term cost.

Questions to ask any loan officer

1. Do you work for one lender, or do you compare several?
2. How are you paid on my loan, and where will I see it on the Loan Estimate?
3. Are there any rules at your company that are stricter than the program’s own rules?
4. Can you show me Option 1 and Option 2 side by side, with the same date and the same assumptions?

For more on how we compare lenders, see how Mortgage Brokers find better rates, our process, how we choose your loan program, and rate vs. APR.

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Sources: Polygon Research via Business Wire: consumers save $10,662 working with a Mortgage Broker (2024). CFPB: rules governing loan origination practices. Regulation Z, 12 CFR 1026.36. CFPB loan originator compensation final rule (2013). CFPB Loan Estimate explainer.