One broker who works with smaller loan sizes sees the need for changes to comp limits
The mortgage industry continues to wait on news about potential changes to the Loan Originator Compensation Rule.
It’s been more than three months since the Consumer Financial Protection Bureau (CFPB) signaled possible rescission of the LO comp rule, and little news has emerged since. Industry organizations, such as the National Association of Mortgage Brokers (NAMB) and the Broker Action Coalition (BAC), are hopeful for input on potential changes.
Carlos Scarpero (pictured top), mortgage broker at Edge Home Finance, remembers the time before LO comp rules were put into place. He said changes need to be made, while consideration needs to be given to keep consumers protected.
“I think there's a happy medium,” Scarpero told Mortgage Professional America. “I’ve been doing this long enough that I remember 1997. I remember how crazy it was. I know that if you do make it where they can pretty much charge whatever they want, there'll be some shady people who will go too high on the comp, too.
“There’s just enough regulation. You have to have enough regulations where everything stays clean, but not so bad that people can't make money. So there's a happy medium, and hopefully that's what they do.”
Avoid losing money
One thing Brendan McKay of BAC told Mortgage Professional America is that LO comp limits make it difficult for brokers to exist in areas with low loan amounts. Scarpero gave an example of a loan that illustrated McKay’s point.
“I would love to see some changes, especially on minimum loan amounts,” Scarpero said. “It’s one of the things that really stinks with the current comp structure. A week or two ago, a customer wanted to buy a house for like, $50,000 or $60,000, and I had to argue with the guy for 20 minutes. He said, ‘Why can't you do this loan? That's discriminatory.’ And I said, ‘I literally lose money on the loan. I'm sorry.’
“We have to have a minimum loan size, and he's all angry. I said, ‘Go call your bank,” and he said they had already declined him. He said he would bring more money to the table to get me paid, and I told him I can’t accept it.”
Scarpero has seen the other side of the LO comp issue firsthand. He started his career at a bank as a closer. He often had to take loans to close them, where they were being charged excessive compensation rates.
“I think the flip side of that too, because I did closing years ago,” he said. “The company would do these crazy loans in West Dayton, in the worst neighborhoods. I'm presenting paperwork to them. And I knew the deal was bad, but as closer, I couldn’t say anything, because I’m paid for by the lender. They would ask if it was a good deal, and my only reply was, ‘Well, you’ve got three days to change your mind,’ because I’m representing the lender. I’m not there to consult them.”
The need for reform
His experience as a closer at the beginning of his career showed Scarpero why some limits needed to be in place. However, he also thinks it is time to discuss LO comp reform.
“I understand why LO comp came out, because you're trying to prevent that kind of stuff,” he said. “But at the same time, if you're not serving customers because you're sitting there with minimum loan sizes, then that's a problem too. I’m glad to see it addressed, and I'm certainly open to it.”
Scarpero compared the potential changes to the way appraisal rules changed. He said at one point, banks would shop around to appraisers to make sure they would get the value they needed to get a loan completed. Then, rules were put into place in the aftermath of the 2008 housing crisis to keep that from happening. That’s when Appraisal Management Companies (AMCs) came to the forefront.
Dan Figurski (SingleSource) says AI‐powered appraisal waivers can slash analysis time, but brokers must still “look at the physical aspects” and verify AI outputs. Automated tools help—but the human touch remains essential.https://t.co/xtRS6QEH5Q
— Mortgage Professional America Magazine (@MPAMagazineUS) September 9, 2025
“I know people complain about AMCs, but the people who haven't been doing this long, they don't realize what was going on back then,” Scarpero said. “Because back then we would shop appraisers. We would call three appraisers and say, ‘I’ve got this house on 123 Main Street. I need $125,000 on this house.’ The appraiser would say it was worth $98,000, and we’d hang up and call the next one.
“That’s not good either, because the appraiser is supposed to be a third-party, neutral source. So the appraisers would go high, and we’d get all the business. Then we flipped over to this AMC model. But then AMCs became abusive. So what's that happy medium? Honestly, I have no idea, but the current model is broken there, too.”
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