Wow, I can’t believe how many wrong answers show up for this question. Okay here’s the scoop:
There was a federal rule that went into play on April 5, 2011 and the Dodd Frank Act adopted the rule as well. We call it The FRB Rule on Loan Originator Compensation.
The loan originator decides on a set fee with his or her employer. The LO must be supervised by either a mortgage broker, lender, or bank.
The fee is either disclosed to you in Box A of The Loan Estimate as a “loan originator fee” OR if there is no fee disclosed to you in Box A of the Loan Estimate, the the loan originator’s fee is being paid by you in the form of a slightly higher rate. You don’t see the LO’s fee, but the LO and the LO’s company have already set the fee by written contract.
Example: $200,000 loan.
Loan originator negotiates a 1% fee.
When the loan closes, the LO receives $2,000.
The company still earns its profit because they purchased mortgage money at a slightly lower rate (think wholesale) compared to the retail rate you will be paying for the life of the loan.
The Federal Reserve Board Rule on LO comp does not allow for a loan originator to negotiate a different fee for each customer.
The reason hinges on a couple of legal cases. The best one is FTC v. Golden Empire Mortgage. With subjective pricing, the loan originators were charging whatever they wanted. If you were too stupid to not demand/negotiate a lower rate, you got stuck with the higher rate. In the Golden Empire case, the local Russian and Mexican immigrant buyers got steered into the higher rate loans and the mostly white borrowers ended up with the best rates and fees. Subjective pricing could lead to Fair Housing/Fair Lending and ECOA (equal credit opportunity act) violations so subjective decision-making by LOs is a violation of federal law in all 50 states.
Instead of thinking you’re gonna negotiate the fee, why not comparison shop and apply at three places: Where you bank, with a local mortgage broker, and also with a local non-bank mortgage lender. Compare their Loan Estimates and ask them to explain how they’re paid. They should not be trying to hide this from you. Ethical, legitimate loan originators welcome the opportunity to show you how their compensation is disclosed to you. It will either be in Box A of the loan estimate or you will be charged a slightly higher rate.
What’s more important that the best rates and fees is the ability of that loan originator to get your deal closed, on time.