How much is my Loan Officer making?

by Michael Quihuiz | Jul 07, 2015

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This is a common question, and one many borrowers seeking a home loan may find themselves asking. Even though the current lending laws and regulations are set up to make the loan process as transparent as possible, there still seems to be a lot of confusion surrounding the matter.


Allow me to give you a breakdown of the commission that I earned from a recent transaction. I am a Mortgage Loan Officer employed by a Mortgage Broker. Please know that the following breakdown applies to a Mortgage Broker transaction and not a Retail Bank or Direct Lender transaction as they are not required to disclose the commission earned.

Sample settlement statement from a recent refinance

LoanOfficer_HUD_Snapshot

So let’s dissect line 801 to find out what’s in it for the Loan Officer. In the body of the line you will see the following amount disclosed

  • Our origination charge $8,255 = Lending Bank Fee + Loan Broker Compensation

That amount represents the sum of the following:

  • Lending Bank Fee = $875
    This portion of the origination charge was paid to the institution that the Mortgage Broker placed the loan with. The fees for each wholesale bank will vary although the vast majority of lending banks charge a fee between $795 and $995.
  • Loan Broker Compensation = $7,380 ($492,000 Loan Amount * 1.5%)
    A commission of 1.5% was earned from this transaction. In this case, it was Lender Paid Compensation meaning that the commission was paid to the Mortgage Broker by the Lending Bank. Lender Paid Compensation percentages are unique to each Broker or Lender relationship and all contracts are always set up in advance of submitting any deals. This means that anytime the broker places a deal with this particular bank, it would result in the compensation payout, regardless of which loan program the borrower chooses.
  • Total Compensation: $8,255

After the loan is funded, the title company that facilitated the close of escrow disbursed a check to the Mortgage Broker in the amount of $7,380. Once the check is received by the Mortgage Broker, the following fees are deducted automatically: Broker Fee, Processing Fee, and Estimated Tax Payment

  • Broker Fee = -$800
    I currently hang my license under another Mortgage Broker and I pay them a percentage of each deal I close. The Broker is responsible for handling all licensing, compliance, payroll, and maintaining lending relationships. These responsibilities can be time consuming which is why I choose to hang my license under another brokerage. This allows me to concentrate my efforts on originating loans and better serving my clients.
  • Processing Fee = -$500
    While a licensed Loan Officer facilitates the loan and serves as the main point of contact with the borrower, a processor serves as a liaison between underwriter, loan originator and lender. They also ensure that all customer files are complete and in compliance with regulatory agencies and internal policies. Loan processors are compensated by the Mortgage Broker as this fee cannot be directly charged to the borrower.
  • Taxes = -$1,850
    Just like every other individual employed in the United States, a portion of my income will go to Uncle Sam (IRS).
  • Total Gross Profit: $7,380 – $800 – $500 – $1,850 = $4,230

In the end, I was left with a net commission check of $4,230. I have no problem sharing this information with you, and as a borrower, you have every right to know.

This article was written using a recent transaction I did for a client of mine that authorized this disclosure, for the benefit of offering full transparency to the readers on this site. This client agreed that this information would help other borrowers gain a better understanding into how Loan Officers are compensated.

At first, you may think, “Wow what a good profit, $4,230”, but what people don’t see is all the time spent on this single loan. It took more than 35 days to close. During the 35 days, I was working every day to ensure loan would go smoothly, which means coordinating with various people involved in this transaction from Title Officers, Loan Processors, Underwriters, Home Inspectors, Loan Appraisers, other agents.

Every loan is unique, and this one was no different. My client had a very unique investment situation that required multiple email and phone call exchanges and me consulting with outside resources to properly handle this loan. He had a very complicated tax situation that required careful pre-planning for this loan to make sense.

For this unique client, if I accounted for all the hours I spent on this loan, I would estimate, close to 100 hours working with various people in the industry and reviewing documents. If you break my total compensation per hour, then I was only making $4,230 /100= $42.30 per hour. Loan Officers play one of the most important roles in a real estate transaction. That compensation is very fair. Don’t look at total cost and be shock. Instead, think of the value you’re getting. You are paying a loan officer for their lending knowledge and expertise. They are the key individual to seeing your loan go through successfully.

The client himself is a Silicon Valley Tech Engineer with a very extensive real estate investment portfolio. Click HERE, if you would like to hear what he had to say about my services and read my profile. If you like to contact me directly, please Click Here Thanks for taking the time to read.

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Comments

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