How mortgage loan originators are compensated

If you are beginning or transitioning into a career as a mortgage loan originator (MLO), your first question is likely: how will I earn an income?

first tuesday recently digested the laws for how MLOs may be paid. But, here in California, these laws translate into practice in a variety of ways.

Compensation structure may vary from office to office by commission or fee splits, salary, bonuses and benefits.

For example, large operations like banks that employ MLOs are more likely to offer base salaries and benefits. On the other hand, smaller, state-licensed mortgage brokerages are more likely to rely purely on commissions.

Related article:

Letter to the Editor: Explaining California MLO licensing and endorsement

MLOs at boutique brokerages

Much like a real estate agent, MLOs negotiate their percentage fee — commonly referred to as commission — with their broker. At small boutique brokerages (as in, not attached to a large bank), most MLOs rely entirely on commission for income. Further, each time they close a loan, their commission may vary considerably, from 20%-80% of the fee received by the broker.

Why such a large range?

On the lower end, an MLO may receive 20%-30% commission if they did very little work on the loan file. For instance, if all they did was refer the client to another bank or originator, they may receive a 20% referral fee.

However, an MLO who receives a high commission likely did the bulk of the work closing that particular loan, and they also bring a high volume of loans into the brokerage in general, so it’s worth it for the broker to give them a larger share of their fee. Once they get their feet wet, most MLOs can expect to close one or two loans per month, with the most productive MLOs closing five-to-ten loans a month.

For example, consider a $500,000 mortgage, which generates a $5,000 fee for the brokerage. An MLO who receives a high 80% commission will receive $4,000 to close this file, while an MLO who receives a low 20% referral fee will receive $1,000. Some brokerages also have limits on the dollar amount an MLO can receive on a single loan, something the MLO will discuss when negotiating their fee split.

An MLO starting out can expect to receive a lower commission split while they are learning the ins and outs of the mortgage origination process, and while they build up a referral network to increase their volume.

In fact, some MLOs supplement their income by wearing multiple hats, including real estate agent. This is an easy move to make, since many state-licensed MLOs are already licensed by the California Department of Real Estate (DRE) and receive an MLO endorsement to originate loans. However, individuals cannot collect more than one fee on the same transaction. [12 Code of Federal Regulations §226.36(d)]

MLOs at big banks

MLOs who work at large, national banks receive a base salary, plus bonuses for each file they close. The average loan officer — including those employed by banks and small brokerages—earned $85,900 in California during 2017, according to the California Employment Development Department.

For example, the average MLO at Wells Fargo earns a base salary of about $43,000 annually. With bonuses/commissions the average Wells Fargo loan officer receives about twice that, plus benefits like medical, sick days and paid time off, according to Glassdoor. While the average base salary and bonus/commission amounts vary, the total average income for MLOs is similar at Bank of America and Citi Bank.

This bonus may be structured as a percentage of the loan amount. For example, an MLO’s bonus may be 0.3% of the total loan amount. For a $500,000 mortgage, they receive a bonus of $1,500 on the single loan.

For an MLO comparing positions at a large bank with a boutique brokerage, the stability and routine of a large bank may be comforting. On the other hand, banks offer less flexibility for their MLOs, so negotiating for a larger fee split when the MLO’s volume or workload increases can be a headache.

Which is better?

Do MLOs have it better at boutique brokerages or banks?

The answer isn’t straightforward.

MLOs at big banks receive the stability of a paycheck and regular bonuses with each transaction closed. Another plus, these MLOs may not need to do as much marketing when it comes to going out and finding clients, since the name-brand recognition of their bank likely draws clients to them in the first place.

But these MLOs also receive less commission per file, so the opportunity for income growth is limited.

MLOs working for boutique brokerages shoulder a little more risk, as they are completely reliant on commission — just like real estate agents. But the commission they receive per file is usually significantly higher than the bonus received by an MLO at a bank. Thus, the potential for growing their income quickly is high for hard workers with large networks.

MLOs who want the high earning potential of a boutique brokerage and the lighter marketing workload of a bank may consider a larger boutique brokerage, with established name recognition and a large network of real estate agents already in place.

MLOs at small brokerages are also usually 1099 employees or independent contractors. This means they have to set aside money from their paycheck for taxes, something a salaried MLO doesn’t need to worry about as much. This is all to say that, even though an MLO at a small brokerage may appear to be making significantly more money than an MLO at a bank, you need to include taxes into the equation to figure out the true income difference.

MLOs — How do you get paid? Do you have any tips for MLOs starting out? Share them in the comments below!

Editor’s note — Multiple sources were consulted for the information in this article, but we’d like to offer a special thanks to Mindy Luong with HPT Realty.