The broker channel has seen significant growth. According to Inside Mortgage Finance estimates, brokers accounted for 18.2% of first-lien mortgage originations in the second quarter of 2024. That was up from 16.9% in Q2 2023 and a substantial increase from the historic low point of 9.8% at the end of 2014.
Targeting LO compensation
As the broker channel expands, so does its exposure to regulatory scrutiny, according to some industry participants. Questions remain about certain regulations, which sources believe the CFPB audits will help to clarify. This is particularly true for rules surrounding lender-paid and borrower-paid compensation, a structure unique to the channel.
Jonathon Haddad, chairman and CEO of the Association of Independent Mortgage Experts (AIME), expressed support for the audits, calling them “a long time coming.”
“The broker owners I’ve spoken to who are being audited are professionals of high integrity, dedicated to acting in their clients’ best interests, and we believe the audits will confirm this,” Haddad said. “As it currently stands, the primary focus has been on originator compensation structures — an area that deserves attention.”
The Dodd-Frank Act allows mortgage brokers to be paid by lenders, but these contracts are typically renewed every three months. Borrowers can also pay the fee themselves, creating room for negotiation.
Sources told HousingWire that borrower-paid compensation, which is often 50 to 100 basis points lower than lender-paid compensation, enables LOs to compete with the pricing exceptions offered by retail loan officers in a competitive market.
While regulations provide clear guidelines — such as prohibiting dual compensation from the borrower and lender, and banning compensation tied to transaction terms — they offer little clarity on when LOs can switch between lender-paid and borrower-paid compensation structures.
“I do believe that competition is always good for the consumer, and the CFPB should allow brokers to give credit to the consumer,” said Thuan Nguyen, CEO and founder of Loan Factory. “But the rule is not clear at all. It’s very muddy. That’s the risk of running a mortgage brokerage. We have to deal with it and don’t have a choice. We wish that the regulator can be clear on this.”
Colgate Selden, a founding member of the CFPB and an attorney at SeldenLindeke LLP, explained that some companies don’t allow LOs to switch from a lender-paid to borrower-paid compensation model after certain stages in the transaction — such as after disclosures or the loan estimate are issued — due to associated risks. He noted that this situation “hasn’t really been fully vetted.”
Sources said another issue on the CFPB’s radar is whether brokerage firms are directing most of their loans to a single wholesale lender while advertising that they are shopping around.
This scrutiny comes in the wake of a class-action-seeking lawsuit against United Wholesale Mortgage (UWM), the largest U.S. wholesale lender. The lawsuit alleges that the company conspired with mortgage brokers to apply excessive fees and costs to borrowers. In response, UWM has called the accusations a “sham.”
“If you broker 99% of your loans to one lender while marketing to people that you work with a bunch of lenders to find the best pricing, that has characteristics of what was happening before the meltdown in 2008, and the reasoning for the LO comp rule. That’s deceptive or a misrepresentation to the borrower,” Selden said.
Experts said a potential safe harbor for brokers is to work with at least three different lenders — not just three different products or scenarios.
“We’re starting to promote this approach as much as possible,” Sweeney said. “Most people operate in that manner, but there are times when one lender might have two different products viable for that consumer, and then your third option is from a second lender. It does sound like the CFPB is looking for three different lenders, not just three different products.”
Requests for more lender options are growing amid increasing concentration in the wholesale lending market, where UWM and Rocket Mortgage dominate. Many brokers cite these two companies for their advanced technology, high-quality service and sometimes more competitive pricing.
At Loan Factory, Nguyen said his brokers work with 200 lenders and each loan runs through a pricing engine that compares offerings. But despite all of these options, 40% of Loan Factory’s loans are directed to a single lender.
“We have a big team of compliance staff to help. And of course we are planning to hire more now,” Nguyen said. “If the CFPB steps in, then it will be extra work, extra resources to be put into compliance.”
Future of the bureau
Industry experts believe the CFPB could undergo significant changes under the second Trump administration. Elon Musk, the world’s richest man and the owner of Tesla, SpaceX and the social media platform X, has even called for the CFPB to be dismantled as part of his broader scrutiny of government spending.
“Traditionally, around D.C., if a regulatory agency starts an examination or enforcement action, the new incoming administration lets it proceed,” Selden said, adding that there was the case in the past when enforcement actions were shut down. “I would think that even the new administration may want to just continue gathering data, at least to monitor what’s going on in the market.”
But McKay expressed caution.
“If any broker is sitting there crossing their fingers, hoping that the new administration solves their compliance problem, that’s a bad strategy,” McKay said. “There will definitely be changes within the CFPB, but even if there’s still the possibility it could all go away, this is more of a change within the broker channel than it is with the CFPB behavior.”
