The 1099 rule permits mortgage brokers to compensate loan originators in a manner that can incentivize aggressive sales tactics. Proponents argue its legality under certain federal and state regulations. However, industry insiders express concern that this approach can lead to unethical practices, where less knowledgeable borrowers may be pressured into loans with high commissions for brokers. A mortgage executive criticized how brokerages are focusing on recruiting and profit-driven motives, reminiscent of past practices that damaged the mortgage industry's reputation, especially with newly revived aggressive sales strategies.
The broker mentality is, I'm just gonna pay on split and I'm gonna do an 80. They actually do recruiting videos and recruiting calls. It's blatant.
However much you can sell, you'll get a percentage of that. So now you have an incentive to get as much as you can. If you're dealing with a customer who is not savvy, then you can shove a loan down their throat and generate thousands.
A $40 million-a-year producer who has their own 1099 corporation and is paid on production might receive 250 bps per loan.
Many broker shops, knowing that they are not at risk of attention from regulators, are throwing caution to the wind; bringing back old practices that tarnished the reputation of this industry.
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