Pricing

We as brokers are no longer able to negotiate our fees as we have in the past.  In times gone by an origination fee of 1% was often the norm, with especially complex or particularly small deals commanding a higher percentage because of the work involved vs. the remuneration associated with it.

A number of changes were mandated by the government in 2010.   As of January of that year, brokerages were required to have a Lender Paid Compensation (LPC) agreement for each lender with whom they were approved to do business. The agreements are company-wide so that every mortgage broker that works for Cypress Mortgage (my parent company) must abide by the LPC agreement between Cypress and a particular lender. 

Brokerages, however, do have different LPCs with different lenders. The percentages of these agreements vary from 1% up to about 3%.  (The spread at Cypress is from 1% to 2.125%).  So, what happens is that for larger loans (jumbos), brokers typically price their loans with lenders that have a 1% LPC agreement with Cypress Mortgage.  For smaller loans (conforming and high balance conforming), they are more apt to gravitate toward lenders with whom Cypress has a 1.5% LPC.  And, for small loans or ones that are more time and labor intensive (because of the additional paper-work) like FHAs and VAs they tend to favor lenders with LPC percentages in the neighborhood of 1.75% or 2% and so on.  (Also with VAs and FHAs there are certain charges that the borrower cannot pay for so the broker or the lender must absorb these).

Another notable change instituted in 2010 was that brokers can no longer charge for processing; it is incorporated into the loan origination fee.  Ironically, processing is the most time-consuming and labor-intensive aspect of the mortgage industry.  Certain lenders, however, allow brokers to charge for processing if they outsource the processing to a licensed processor outside of the brokerage and it is part of their LPC agreement.  Again, to offset the additional work uncompensated work, mortgage brokers tend to go with lenders with higher LPC agreements to pay their in-house processors.