Rethinking Loan Officer Compensation: A Call for Industry-Wide Reform
Loan Officer Compensation (LO Comp) reform isn’t just a policy debate. It’s a litmus test for whether our industry can move beyond channel bias and come together to advocate for changes that truly benefit consumers.
For more than a decade, the LO Comp Rule, born out of the Dodd - Frank Act, has governed how mortgage professionals are paid. The intent was clear: eliminate incentives that led to steering and protect borrowers from predatory lending practices. And in many ways, that intent was realized. But intent and impact aren’t always the same.
Today, the rigidity of LO Comp rules is creating barriers, not bridges. And as dozens of industry leaders from across the mortgage ecosystem have shared with me over the last few weeks, the need for reform is real. But so is the need for balance.
How We Got Here: From Yield Spread Premiums to Overcorrection
The LO Comp rule was a response to a real problem: mortgage brokers in the pre-2008 era receiving higher payouts for locking borrowers into higher-than-necessary rates through yield spread premiums (YSPs). But that issue wasn’t limited to brokers.
Across all channels and company types, it was also common to compensate loan officers based on a percentage of revenue, whether measured as gain on sale or loan-level margin. Inherently, this methodology meant that the more margin a loan generated, the more the loan originator earned. Loans with “above-market” interest rates or product types with higher margins, like government loans, would drive higher commissions. The incentive to steer wasn’t theoretical. It was baked into how many LOs were paid.
But instead of narrowly targeting this abuse, the rule swung wide, prohibiting all compensation variations based on loan terms and applying the same standard across all lender-employed loan officers. In theory, this leveled the playing field. In practice, it often penalizes the very professionals who try to do right by their clients.
As Chris Gassel of Arcasa put it: “That’s not protecting consumers. That’s handcuffing them.”
The CHLA Proposal: Practical or Problematic?
On June 26th, the Community Home Lenders of America (CHLA) released a white paper advocating for targeted LO Comp reform. Their recommendations include:
Letting loan officers voluntarily reduce compensation to match a competing offer
Allowing lower compensation on state Housing Finance Agency (HFA) loans
Permitting comp adjustments on brokered loans or in cases of LO error
Legislatively limiting LO Comp rules to apply only to compensation between firms, not within them
These proposals have reignited the debate over whether the current structure serves consumers or stifles competition.
Voices Across the Industry
“LO Comp today is a well-meaning policy trapped in a regulatory time warp.”
— Keith Canter, CEO, First Community Mortgage
Canter emphasized that LO Comp blocks trusted relationships from surviving competitive pressure. LOs often lose deals because they can’t adjust pricing late in the game, even if it’s in the borrower’s best interest.
“If our loan officers had the ability to match pricing... that would be reasonable and appropriate.”
— Steve Majerus, CEO, Synergy One Lending
Majerus focused on the channel imbalance, where brokers often retain flexibility under borrower-paid comp while IMBs remain locked into rigidity.
“They can’t compete like every other line of work out there.”
— Greg Sher, Managing Partner, NFM Lending
Sher called out the demoralization of retail LOs who invest months into a borrower relationship but can’t retain the deal when last-minute offers surface.
“This law was applied very differently across lenders... it reshaped retail lending entirely.”
— Bill Dallas, CMB, Founder and Former CEO
Dallas noted that LO Comp compliance has created structural disadvantages for retail lenders, particularly as broker market share has rebounded.
Ryan Grant added a note of realism: “20 companies have 20 different approaches. No one is really clear on what’s accurate.”
Coby Hakalir echoed that sentiment, but with a view toward thoughtful reform: “We need a framework that empowers LOs to act in the consumer’s best interest with transparency, optionality, and integrity.”
Danny Horanyi brought historical context: "Access to information is exponentially higher in 2025 than it was in 2005. If LO comp rules were to change back to the participation model of the 2000s, the likely outcome is an overall lower average price to the client."
Bryan Lovell emphasized the need for professional accountability: “The rule protects against bad actors, but in its current form it often penalizes lenders for honest mistakes... Brokers should be under the same LO comp rules as the rest of the industry.”
Podcast Perspective: The Cost, Control, and Crossroads of LO Comp
In a recent episode of Lykken On Lending, several veteran mortgage professionals offered a candid, unscripted look at the real tensions behind LO Comp reform, from historical realities to economic pressure points.
Alice Alvey, Master CMB , kicked off the segment by summarizing CHLA’s recent white paper: “They make the case that LO Comp restrictions harm consumers, ignore increased price shopping, and create an unlevel playing field… The question we keep running into: if a borrower finds a better deal across the street, can the LO give up part of their comp to keep the loan? The rules make that incredibly difficult.”
David Kittle, CMB, former MBA chairman, didn’t hold back: “LO Comp is too high. If you’re switching companies all the time, it’s probably because your comp structure is unsustainable. The biggest cost in the company today is the LO. We need flexibility to reduce comp to get a deal done. I did that my whole career.”
Marc Helm, CIS Home Loans President, brought the economics into focus: “How does it make sense for someone to make $10,000 on a million-dollar loan but only $1,000 on a $100,000 loan? That compensation gap has nothing to do with effort. We need a scaled structure that reflects actual value delivered, not just loan size.”
David Lykken tied the issue to recruiting dysfunction: “It’s gotten to the point where we’re leasing loan officers. Huge sign-on bonuses, then they jump ship the moment the recapture window ends. It’s not sustainable, and it’s not building anything long term.”
And when it came to reform, the group was aligned:
Industry change is more desirable than regulatory mandates.
The current rules have narrowed business flexibility to a fault.
Servicing portfolio income is masking broader profitability gaps, and driving bad comp behavior.
Alvey summed it up: “We don’t do change well as an industry. But if we don’t take the lead on this, someone else will, and it might not be the version we want.”
A Compliance View: Practical Realities and Policy Gaps
Dana Peznowski, Chief Risk Officer & General Counsel, Towne Mortgage Company, provided one of the most detailed and candid breakdowns:
“Like many federal and state laws, I believe the LO Comp rule was not created with practical reality in mind... While I am sure it succeeded in decreasing certain predatory practices, holistically, I believe that the LO Comp rule impedes reputable lenders and loan originators from, at times, acting in the consumer’s best interest.”
She noted how informed and proactive today’s consumers are: “They compare rates and fees, negotiate terms, and expect lenders to match competitive offers. Hell, I did and I work for a lender!” Yet when originators are handcuffed by comp restrictions, the result is often a lost deal or a forced pricing concession from the lender, which many can't afford to do regularly.
On the fair lending concern, she argued: “If compensation flexibility was allowable, and there was a bad actor in the mix, it would quickly become glaringly obvious… not based on the LO Comp rule, but the other more relevant regulations.”
She also raised concerns about accountability: “By prohibiting lenders from penalizing loan originators for errors made during origination, the rule removes incentives for accuracy... the costs of which are paid by lenders and ultimately get factored into overall pricing structures. Hello, indirect consumer impact!”
And perhaps one of the clearest breakdowns of ambiguity: “I’ve reviewed the regulation, the CFPB’s guidance, and industry publications... and I’ve even asked AI, the answer I always land on for Program variations is unfortunately, no.”
Her closing point is one many are echoing: “Ultimately, a balanced regulatory framework is needed... I think the proposed revisions by the CHLA accomplish that.”
Ken Perry, President & CEO of Knowledge Coop, offered a sobering view from the front lines of compliance training and regulatory interpretation. He emphasized that while the LO Comp rule was built with good intent, its uneven enforcement and real-world ambiguity have created a playing field where bad actors thrive, and ethical lenders are often left guessing.
“Most companies are violating the rule with workarounds that allow business as usual. Brokers and lenders both engage in practices that push the limits, like manipulating lead source coding or selectively presenting lender options on anti-steering disclosures. The problem isn’t just the rule, it’s the lack of consistent oversight.”
Perry argued that the rule has fallen short of its original goal, especially when applied to complex transactions like bond programs or appraisal scenarios: “The CFPB’s failure to exempt HFA loans is lunacy. It’s actually limiting access to affordable programs that consumers need most.”
While he expressed concern about reintroducing rate-based compensation due to potential fair lending disparities, Perry called for smarter calibration, not blanket rigidity: “Without real enforcement, the rule gives violators the upper hand and punishes ethical originators. That’s the opposite of consumer protection.”
Al Pitzner, Managing Director at Conforma Compliance Group, offered a clear reminder that the LO Comp rule is rooted in statute, not just regulation, and that any attempt to rescind or revise it without legislative action could create more compliance uncertainty, not less.
“Without the current rule’s safe harbors, the industry would be subject to the broad, and often vague, statutory prohibitions of Dodd-Frank. While the CHLA paper raises important questions, several claims are overstated or not well-supported. The LO Comp Rule, despite its imperfections, played a critical role in eliminating steering practices that once harmed consumers.”
A Regulator’s Perspective: Protect Progress, Don’t Paralyze It
Bob Niemi, CMB, brings a rare 360° view: former originator, sales leader, state regulator, and now Director of Government Affairs at Weiner Brodsky Kider.
“The LO Comp rule has undeniably improved the industry since its imposition in 2013… but it now needs thoughtful adaptation.” He called out inconsistent interpretations: “Compliance varies based on perceived enforcement risk. Some knowingly cross the line. Others are paralyzed trying not to.”
Bob supports reform—but only with guardrails:
✓ Match competitive offers: “Can benefit consumers but raises oversight concerns. Monitoring consistency will be key.”✓ Lower comp on HFA/SPCP programs: “Yes—with oversight. The inability to do so hurts affordability.”✓ Different comp on brokered loans: “Yes—ish. But within defined boundaries by lender type.”✓ Recapture LO comp for avoidable mistakes: “Yes, but underwriting errors should not fall on the LO.”
“There are two enemies of change: the fear of change itself and the failure to address its unintended consequences.”
A Policy Lens: Trade Associations and Compliance Counsel
Justin Wiseman, VP & MBA Managing Regulatory Counsel, framed the issue within
a broader ecosystem: “Like a lot of the Dodd-Frank rules, the loan originator compensation rule is discussed in isolation but is part of a much larger regulatory ecosystem...”
Wiseman argued that reforms such as the QM rule and TRID already addressed many of the consumer protection concerns, and LO Comp in its current form is now causing more market distortion than benefit.
MBA’s Reform Recommendations:
Exempt bond or state HFA loans
Allow comp reductions for bona fide LO errors
Permit LOs to share in concessions for demonstrable competition
“Given the extremely high degree of difficulty in passing the kind of legislation needed to modify the LO Comp statute, MBA is focusing with the new CFPB leadership on modifying the rule. LO Comp reform would reduce systemic costs that increase credit prices, while preserving consumer protections.”
Broker Perspective: Facts Over Fear
Valerie Saunders, Executive Director of NAMB, offered a strong defense of lender-paid compensation (formerly Yield Spread Premium), framing it not as a relic of pre-crisis abuse, but as a consumer-beneficial tool when used transparently.
“When disclosed clearly, lender-paid comp enables borrowers to obtain loans with reduced or no out-of-pocket closing costs, while allowing brokers to run sustainable businesses.”
She emphasized that brokers already operate under strict licensing, education, and disclosure standards, and urged regulators to align outdated rules with today’s more competitive and transparent marketplace: “NAMB will always champion the broker’s ability to offer competitive, consumer-focused solutions. But we also call on lawmakers to ensure that rules designed to protect borrowers don’t ultimately harm them by reducing access and choice.”
For Saunders, the conversation about LO Comp isn’t about protecting brokers, it’s about preserving consumer optionality and competitive pricing, especially in underserved markets.
A broker owner, who requested anonymity offered a contrasting view, stating that the LO Comp rule works well in principle, if it were actually enforced. They cautioned that hybrid models and point banking practices blur the lines between broker and banker, creating APR inconsistencies and unfair advantages across channels.
Brendan McKay, Chief Advocacy Officer of the Broker Action Coalition and owner of McKay Mortgage Company, called out what he sees as a persistent and damaging
narrative in industry discourse: the idea that brokers exploit loopholes or operate with less regulatory oversight. He described CHLA’s white paper as: “Yet another tired ‘Blame the Broker’ argument… In 2025, it’s not just outdated, it’s lazy, inaccurate, and frankly disappointing.” McKay challenged the notion that brokers face less scrutiny than retail or depository lenders, pointing out that brokers are licensed, tested, background-checked, and audited, often more rigorously than bank-based originators, who remain exempt from federal licensing requirements.
He also flagged a structural inequity in the current LO Comp framework: “Brokers are capped at 2.75% comp, which can make it impossible to serve low-loan-amount or credit-challenged borrowers profitably. That’s not a channel problem, that’s a consumer access problem.” Brendan pushed back on the claim that transparency is a broker advantage: “Brokers have to disclose their compensation on every transaction. Other channels don’t. That’s not transparency parity, it’s imbalance.”
His larger point echoed a theme heard throughout this article: the real solution isn’t to pit channels against each other, it’s to create rules that promote fair, flexible, and transparent outcomes for all borrowers. “This isn’t about protecting brokers. It’s about building a system where consumers win, no matter who originates their loan.”
Rob Pieklo, President & CEO of American Financial Resources (AFR), offered a sharp critique of the CHLA white paper, calling it “a poorly crafted attempt at taking shots at a channel while attempting to weakly fix a regulation.” He challenged the paper’s framing of broker compensation as both factually inaccurate and unnecessarily divisive. “Competition, not fulfillment method, should drive this conversation. Choice benefits everyone: originators, lenders, and especially consumers.”
Pieklo pointed out that broker LPC is too rigid, often leaving no room for adjustments tied to small concessions or program changes. And while borrower-paid comp (BPC) can provide flexibility, he noted its presentation on the LE/CD can confuse borrowers and distort APR comparisons: “We have different disclosure requirements for the same loan depending on who delivers it, that’s not transparency, that’s inconsistency.”
His recommendation? Simplify and modernize the rule by focusing on what the borrower receives, not who delivers it: “Loan originators are loan originators. Who they work for shouldn’t dictate how they’re regulated. Set a comp range and allow for downward variance when appropriate, with clear, consistent guidance.”
Julie Lawrence, an independent broker, put it bluntly: “Why not let me lower my comp and lower the rate to help those less fortunate? Just because banks can’t? That is not fair lending.”
What Comes Next?
LO Comp reform doesn’t have to mean deregulation. It can mean modernization. As Paul Flynn said in response to this conversation: “Reform shouldn't change how you show up. It should just allow you to show up more flexibly, more competitively, and with
more trust. That’s exactly what borrowers expect from their LO.”
Mike Cush added: “There’s no defendable reason for these rules to apply differently by channel.”
The Credit Union Perspective: When Member-First Philosophy Meets One-Size-Fits-All Regulation
While most of the commentary in this article comes from IMBs, brokers, and trade associations, the credit union perspective offers a critical lens often missing in regulatory conversations, particularly when it comes to how LO Comp policy impacts institutions built around member service rather than shareholder return.
As not-for-profit, member-owned financial cooperatives, credit unions are designed to operate differently from for-profit mortgage lenders. But as Kate McDougall, AMP, CMB, VP Lake Michigan Credit Union, points out, the current LO Comp framework doesn’t make room for that difference, and the result is a hidden disadvantage for the very members credit unions were built to serve.
“Credit unions don’t have shareholders. We return value to our members through better pricing, lower fees, and more personalized experience. But the LO comp rule handcuffs us from delivering on that mission, especially for members relying on affordable housing options.”
The inability to reduce compensation for bond loans, HFA products, or other affordable housing programs hits hard in a low-margin environment where flexibility could mean the difference between approval and denial.
“When we can’t offer concessions or adjust comp to help a member get across the finish line, that’s not protecting them. That’s limiting their opportunity.” Kate also flagged the disproportionate burden on resource-constrained lenders: “We don’t have endless compliance departments. Every hour spent interpreting comp rules is one less hour spent serving members or innovating for the future.”
McDougal’s message echoes the broader theme of this conversation: consumer protection doesn’t have to mean operational inflexibility. “Credit unions already operate under a fiduciary mindset. When rigid rules meant for large lenders are applied to us without nuance, it’s not the lender that suffers, it’s the member who walks away from the dream of homeownership.”
One Industry. One Voice. One Mission.
If there’s one truth this conversation makes clear, it’s this: the path forward isn’t about who’s right, it’s about doing right by the people we serve. We don’t need more finger-pointing across channels. We need one voice. One industry. One shared goal: a compensation framework that empowers loan originators to act with integrity, compete fairly, and serve consumers fully. That only happens if independent mortgage bankers, brokers, depositories, credit unions, and our trade associations come together, not to
defend turf, but to advocate for common-sense reform. Let’s partner with lawmakers. Let’s lead with transparency. Let’s build the next version of this industry, not from a position of self-interest, but from a shared commitment to those chasing the American dream.
We’ve done this before. Trigger Lead legislation showed what our industry can accomplish when we unify. LO Comp deserves the same momentum. Because at the end of the day, this isn’t about one channel winning. It’s about empowering every originator to serve the consumer with clarity, consistency, and integrity.