LO compensation on a conforming loan: buydowns, discount points and anti-steering options
Your loan officer cannot be paid more for a higher rate or points on a conforming loan, a broker must present you the lowest-rate and lowest-cost options, and a temporary buydown is a seller concession with GSE limits — not originator pay.
What your loan officer is and is not paid for
Under Regulation Z an originator’s compensation may vary with the loan amount but not with the rate, points, product type or any other term. The practical consequence on a conforming loan: the discount points you pay in section A of the Loan Estimate go to the lender to lower the rate, not to the officer, and the officer has no legal incentive to push a 7/6 ARM over a 30-year fixed. What the rule does not stop is company-level pricing — a lender can set a higher margin on all its loans — which is why two lenders with identical LLPA grids quote different rates for the same 760-score, 80% LTV file. Compare lenders, not just loan officers within one lender.
Brokers, dual compensation and the three options
If you use a mortgage broker, the broker is paid either by you or by the wholesale lender, never both on the same loan. When the broker is lender-paid, the anti-steering safe harbor requires presenting loan options from the lenders it works with: the one with the lowest rate, the lowest rate without risky features, and the lowest total points and fees. Ask for that written comparison; on a conforming purchase it typically shows the trade-off between a par rate and a lender credit that covers closing costs, which is the decision a move-up buyer with sale proceeds can make either way.
Temporary buydowns are seller money with GSE limits
A 2-1 buydown funded by the seller or builder is an interested-party contribution, not compensation, and Fannie Mae and Freddie Mac cap IPCs at 3% of the price for LTVs above 90%, 6% between 75.01% and 90%, and 9% at 75% or below on a primary or second home; investment properties are limited to 2%. The borrower is qualified at the note rate on a fixed-rate loan, so the buydown does not expand what you can afford, and the escrowed subsidy is refunded to the lender’s account, not to you, if you refinance early. An excess concession reduces the sales price for LTV purposes, which can raise your PMI tier — ask the lender to run the numbers before you accept a large builder credit.
Permanent points and the line the originator cannot cross
Paying discount points permanently is your choice; the originator may explain break-even but may not receive a cut. Watch for an “origination fee” that rises on a loan where the rate is already above par — a lender collecting both is recovering overhead, not breaking the rule, but the combination often signals a poor price. The NMLS ID of the person who quoted you must appear on the documents, and a quote that changes after the officer “checked with the manager” should be accompanied by an explanation you can verify against the rate lock.
What to check
- Discount points lower your rate with the lender; they are not loan officer pay — shop the lender’s margin by comparing whole quotes.
- With a lender-paid broker, request the written anti-steering comparison showing lowest rate, lowest rate without risky features and lowest fees.
- Check that a seller-paid buydown fits the IPC cap for your LTV; the excess lowers the price used for LTV and can raise PMI.
- You qualify at the full note rate on a fixed-rate loan with a temporary buydown; do not size the purchase on the year-one payment.
Frequently asked questions
Does my loan officer earn more if I pay points on my conventional loan?
No. The loan originator compensation rule prohibits paying an originator based on the loan’s terms, including rate and points. The officer’s pay may vary only with the loan amount or with factors unrelated to terms. Points lower the rate at the lender level. If you are being pushed toward points, ask for a no-point quote from the same lender and from a competitor.
The builder is offering a 2-1 buydown — does it count against the seller concession limit?
Yes. A temporary buydown funded by the builder is an interested-party contribution under Fannie Mae and Freddie Mac rules, subject to the 3%, 6% or 9% cap depending on your LTV on a primary or second home. Anything above the cap is deducted from the sales price when computing LTV. You still qualify at the full note rate, and the unused subsidy is not refunded to you.
The rule in full: Loan originator compensation and anti-steering rules. The borrower profile: Conventional loan borrowers. Related guides: Conventional loan requirements: credit, down payment, DTI, reserves, property · Conforming loan limits: how the FHFA number works and what happens above it · Mortgage points and rate buydowns: when paying for a lower rate pays off · Pre-approval vs pre-qualification: what sellers actually respect.
Other federal rules for conventional loan borrowers
TILA / Reg Z · RESPA · TRID disclosures · ECOA · Fair Housing Act · HMDA · SAFE Act / NMLS · ATR / QM · HOEPA · HPA / PMI · Servicing rules · FCRA · Flood insurance · MARS rule · SCRA
LO compensation for other borrowers
First-time buyers · Veterans · Self-employed · Investors · Retirees · Bad credit · Foreign nationals · Physicians · Heroes · Rural buyers · Condo & second home · Refinancing