Why Are Mortgage Commissions Unfair?

The PropertyClub Team
Aug 13th 2020
If you’ve ever sat down at a dinner table with someone who recently got a mortgage loan, you’ll probably hear some grumbling about the loan officer’s commission. Or, if you’re friends with a loan officer, you might hear them discussing their commission structure.

What’s the Average Mortgage Loan Officer Commission?

A mortgage loan officer gets an average of 1 percent of the total loan amount as a commission. It sounds like a small fee compared to a realtor’s work, but what’s so bad about it? It couldn’t be that big a deal. 

Don’t get us wrong. It’s good to be paid for work that you do. The amount of money itself isn’t the issue; it’s what having a commission structure does that makes it a problem.

Believe it or not, this isn’t fair to anyone, and it actually hurts the lending process immensely. It may not seem unfair at first glance, but don’t be so quick to assume things. Here’s why mortgage commissions aren’t the best deal for anyone involved.

It encourages intermediaries to act against your best interest.

When you’re talking to a loan officer, you want to believe that they will act in your best interest. But how can you expect them to do that when their commissions and bonuses are based on them selling you more stuff? 

A loan officer or financial intermediary in a bind will act on his best interest, even if he knows his client may suffer. It’s not unheard of to hear older stories of mortgage officers twisting the truth about which bank had the best rates. 

Even today, it’s fairly common to see lenders push people towards getting pricier loans or loans that don’t carry the best rates. Why? Because banks are paying them to do it. This is a widespread problem, even though legislation was passed to try to curb this kind of behavior. 

The incentives to sell, sell, sell might be good for lenders, but it’s clear that they aren’t good for actual borrowers. There are even stories of people getting turned away from officers because the loan they’d take out wouldn’t be “worth it” to the lender. 

Commissions cause financial intermediaries to treat customers differently. 

Let’s say that you’re working towards getting a mortgage. You don’t have much money, but you have enough for a modest house. There’s another friend of yours, a wealthy one, who is working with the same mortgage loan officer. Your wealthy friend is putting a loan in for over $750,000.

Your friend’s commission will be almost eight times the amount yours will be, and sadly, it’s very clear from how the officer is acting. He put your friend as a priority, while you lay on the backburner. Why? Because he knows he’s going to be given a higher commission working for his friends. 

We don’t know about you, but it really doesn’t seem right that people of different financial backgrounds get different treatment. If you are lower-income, chances are your intermediaries aren’t treating you as well as their other clients. Does this seem fair to you? It doesn’t jive with us, either.

The tech’s improved since the days of yore.

Commissions were originally a great way to offset the intense amount of work that loan officers would have to do in order to push through a loan. The internet changed that and changed it quickly. New platforms are making it possible to work out all the math without serious repercussions.

The action of putting together a loan no longer involves ample phone calls and letter sending. It just includes getting some emails and maybe pushing your numbers through a program. Knowing that, it seems very unfair that commissions haven’t changed to reflect the drop in work. These days, it’s easy enough to do it on your own.

The price of hiring finance intermediaries keeps growing. 

Getting a mortgage is already going to be an expensive deal. Right now, the commissions and fees paid out to mortgage loan officers and others keeps growing. It’s actually at a near all-time high, despite the services not changing at all. What’s even more insane is that commissions would be even higher if it weren’t for the Truth in Lending Act. 

Despite the high commissions that banks are offering financial intermediaries, we’ve already established that it clearly takes less work to push a deal through. So, those intermediaries are essentially collecting commissions on loans without much work needing to be done on their ends. 

Considering that news, it doesn’t make sense to keep paying people the exact same percentage knowing that they’re doing less work. If anything, that seems like a slight towards buyers. Shouldn’t people get savings passed onto them, rather than having their money needlessly spent on services they don’t need?

It’s also worth noting that many people can do it themselves. 

There was a time when having a finance intermediary was a need, rather than a want. However, that time has long passed. There are online platforms that let you apply for a mortgage in a pinch, and in many cases, you can even do most of the negotiations on your own as well. 

So, not only are finance intermediaries rarely necessary, but they’re also getting paid a ton. That’s not fair, is it? Of course not. In most cases, you should only consider getting an intermediary to work with you if you have tried to get your own loan or just don’t want to deal with the hassle. 

It’s definitely time for a change.

Many signs point to the need for the real estate purchasing process to get reformed. Commissions for mortgages and real estate agents have both become increasingly unfair towards buyers and sellers alike. 

A better way to do things would be to pay mortgage brokers and intermediaries a salary. By eliminating unfair commission structures, it forces financial professionals to look out in their client’s best interest and avoid discriminatory behavior.