“Borrower-paid compensation will no longer be negotiated and the ‘lender-paid level’ will become a uniform broker compensation level,” Provident Funding Associates says in updating its loan officer compensation policy.
Borrowers can still pay the broker directly, but the amount of the compensation must be the same as lender-paid compensation, according to the new policy that went into effect Jan. 1.
Ballard Spahr partner Richard Andreano noted that a lot of lenders were considering this change, “but they were just waiting to see what other industry members did.”
One mortgage broker noted that Provident’s policy will reduce his flexibility to lower his compensation. “There are loans that aren’t going to get done,” he said. “And it will hurt the lower income borrowers.”
This policy change is also being driven by concerns about potential fair lending violations. Regulators might raise concerns about a wholesaler’s loan portfolio due to the varying amounts of broker compensation.
“The government has been pushing to take away discretion,” says Paul Hancock, a partner at K&L Gates. “But it is not necessarily in the best interest of consumers because it prohibits consumers from negotiating a better price with their broker.”
Provident Funding is based in Burlingame, Calif.