What is a Mortgage Loan Officer?
Buying a home requires the involvement of many different interested parties. You may start with just a realtor, and before you know it, you’ve shaken hands with an inspector, a home appraiser, a lawyer, the seller’s realtor, a representative of a title company, possibly a talking dog, and then the host of possible banks or brokers that you will go through before finding the one fit to receive a mortgage from. It’s perfectly normal for first time home buyers and even repeat home buyers to get so swept up in the home purchase process that they lose track of who is who and who does what.
Aside from that pesky talking dog (who we promise won’t actually be a part of your mortgage transaction), one of the most important roles to know of comes from the bank or lender that will be originating your new home loan. With all of the automation and technological advancements seeping into every single industry, we all sometimes tend to forget that these businesses and corporations still heavily rely on real, live people to get the job done. The real person who handles your mortgage loan is known as a mortgage loan officer or mortgage loan originator or simply “MLO” for short.
A mortgage loan officer is a person whose job is to help borrowers get a mortgage loan. Mortgage loan originators work for banks or lenders and assist home buyers in both finding the right loan product and processing the application for the loan that’s ultimately chosen.
What is a Mortgage Loan Officer?
A mortgage loan officer is someone who is employed by a bank or lending institution to help potential borrowers find and obtain a home loan. In short, mortgage loan officers are the actual representatives whose job is to help assist consumers who are looking to purchase or refinance a home. They also help customers obtain home equity loans and home equity lines of credit. You could say that their expertise lies in assessing the right loan product for any given potential borrower. After helping a borrower choose the right product, they’ll help process the loan application and coordinate the entire mortgage transaction.
The majority of mortgage loan originators work in-house for banks, credit unions, and lending institutions. That isn’t to say that there aren't mortgage loan officers who work remotely. As it turns out, a large portion of a mortgage loan officer’s job lies in marketing and securing leads, which may be easier to do when not confined to a singular office.
What does a Mortgage Loan Officer do?
When applying for a mortgage, the borrower typically deals with the mortgage loan officer directly. Once a loan product is decided upon, the MLO assists in the mortgage application process. This includes helping the borrower gather all of the pertinent documentation such as pay stubs, W2s, and bank statements.
Mortgage loan officers are also responsible for coordinating the credit check and assessing the borrower’s financial situation. After these tasks are completed, the MLO remains an integral part of the home buying process. The mortgage loan officer is required to actively coordinate between the title company, the home appraiser, the escrow company, the loan processor, and the mortgage underwriter.
How is a Mortgage Loan Officer Paid?
Mortgage loan officers, like most other professions, do not work for free. In general, Mortgage loan officers stand to make 1% of the total loan amount. As a matter of fact, there are actually two separate avenues by which MLOs receive compensation for the services they provide. Compensation for a mortgage loan officer happens on what is known as the front-end and the back-end of a mortgage transaction.
Front-end compensation encompasses everything that the borrower is able to see and calculate during the transaction. These fees are typically rolled into the closing costs at the end of the mortgage process or paid out of pocket. This would include items regularly seen on TILA-RESPA Integrated Disclosure forms, such as processing fees.
Back-end compensation includes the payments home buyers aren’t readily made aware of. Such payments are made from the bank to the mortgage loan originator as a form of commission for filing and processing the mortgage loan. It is important to note that even though the bank is technically paying the MLO, that doesn’t necessarily mean that the borrower isn’t still being charged in some way.
For example, mortgage loan originators who claim to have low to no front-end fees for originating the loan are banking on getting a decent payment on the back end. While the borrower may not need to come out of pocket for the mortgage loan officer's services, the bank typically compensates for the lack of front-end fees by implementing a higher interest rate, which the borrower is typically set to pay over the life of the loan. Many banks prefer to use this method, as they stand to make much more money over the life of the loan (typically up to 30 years) than through a one-time front-end charge.
What to look out for with Mortgage Loan Officers
The business of loans has always been a cutthroat industry. Even if the shady image of a loan shark has been replaced with a luxe corporate office branch of a nationally recognized banking institution, the nature of the job hasn’t changed. It all boils down to people making money.
With that in mind, a mortgage loan officer is paid to sell mortgages. On the back end, the larger the loan they sell, the larger their compensation. Home buyers who go into a mortgage transaction without keeping this in mind can easily fall into a less than ideal mortgage obligation.
When dealing with a mortgage loan officer, it is always best to assert what it is you are looking for, and what you do not feel comfortable with. An MLO who is too pushy about any particular loan product is almost always putting their financial gain ahead of your mortgage needs. For example, a mortgage loan officer who consistently pushes adjustable rate mortgage (ARM) products is probably betting that a homeowner will need to refinance sooner or later, and will try to get them into another ARM in order to create a cycle of loan origination to profit from on the back-end.
This isn’t to scare you into thinking that all mortgage loan officers are just money hungry con artists. While they do get paid based on what they can sell, most MLOs simply want to help you to find the right mortgage loan for your individual needs. Despite that, sharks do exist, so it’s always important for home buyers to be aware of who they are dealing with and what they hope to get out of the transaction.
That’s why we at home.loans believe home believe that when it comes to buying a home, knowledge is power. If you’re currently on the market for a new home or want to talk with a mortgage loan officer about getting a home loan or a home refinance, don’t hesitate to reach out. Our home.loans mortgage specialists are excited to provide you with a risk-free consultation to get you up to speed!