How a broker is paid. A broker is paid in one of two ways on a given loan: by the borrower directly, as a fee shown among the origination charges on the Loan Estimate and Closing Disclosure, or by the lender, which builds the cost into the loan's pricing. Regulation Z does not allow both. If a loan originator "receives compensation directly from a consumer," then "no loan originator shall receive compensation, directly or indirectly, from any person other than the consumer in connection with the transaction" (12 CFR 1026.36(d)(2)). Which route is cheaper for the borrower depends on the offer, so the useful comparison is the total of the interest rate, points and fees across the options rather than who writes the check.
No pay for a higher rate. Regulation Z says no loan originator may be paid "in an amount that is based on a term of a transaction," and a "term of a transaction" is "any right or obligation of the parties to a credit transaction," which covers the rate, the points and the loan's features. A factor that works as a proxy for a term is treated as the term. The amount borrowed is the stated exception: pay may be a fixed percentage of the loan amount, with a minimum or maximum. So a broker can earn more on a larger loan, but not on a more expensive one of the same size.
The anti-steering rule and its safe harbor. A loan originator "shall not direct or 'steer' a consumer to consummate a transaction based on the fact that the originator will receive greater compensation from the creditor in that transaction than in other transactions the originator offered or could have offered," unless the loan "is in the consumer's interest" (1026.36(e)(1)). An originator is protected if, for each type of loan the borrower wants (fixed rate, adjustable rate or reverse mortgage), it obtains options "from a significant number of the creditors with which the originator regularly does business" and presents three: the loan with the lowest interest rate; the loan with the lowest rate without risky features such as negative amortization, a prepayment penalty, interest-only payments or an early balloon payment; and the loan with the lowest total of discount points, origination points or origination fees. The broker must believe in good faith that the borrower likely qualifies for each. Asking a broker for those three options by name is a practical way for a borrower to see the market the broker can reach.
Licensing and the identification number. Under the SAFE Act an individual "may not engage in the business of a loan originator" without either a registration as a registered loan originator or a state license and registration, plus a unique identifier (12 U.S.C. 5103). Regulation Z requires the loan originator company's name and number and the individual originator's name and number from the Nationwide Mortgage Licensing System and Registry to appear on the credit application, the Loan Estimate and Closing Disclosure, the note and the security instrument (1026.36(g)). The registry number exists, in the regulation's words, to give "public access to the employment history of, and the publicly adjudicated disciplinary and enforcement actions against" loan originators, which is how a borrower can check a broker before applying.
Referral fees are a separate rule. A broker may be paid for its own origination work, but RESPA's section 8 bans fees for referring settlement business. Regulation X notes that the exemption for fee splits between real estate brokers "has no applicability to any fee arrangements between real estate brokers and mortgage brokers," so a payment from a broker to a real estate agent for sending a client is not saved by that exemption.
