What started as a post on LinkedIn, turned into real conversation.
In my post and via a separate outreach, I asked for perspectives on LO Compensation reform, and more than 30 industry professionals answered the call. Executives. Brokers. Regulators. Compliance officers. Trade associations. LOs on the front lines.
What I expected to be a spirited discussion turned into something more urgent and more telling.
What we have today is not just a rule in need of modernization. We have an industry at a crossroads, wrestling with how to balance consumer protection, fair competition, and operational practicality.
It’s time to rethink LO Comp, but we can’t do that from inside our silos.
A rule rooted in crisis…and stuck in time
The Loan Originator Compensation Rule was born from the wreckage of the 2008 financial crisis. Its intent was clear: eliminate steering and protect borrowers from being placed into higher-cost loans based on how much a loan officer would get paid.
Before the rule, yield spread premiums (YSPs) and margin-based commission models created perverse incentives across all channels. Whether through a broker’s YSP or an LO’s percentage of gain-on-sale, the higher the rate or margin, the higher the paycheck.
The 2010 Dodd-Frank Act and subsequent CFPB regulation sought to shut that down. And it did, at a cost.
In trying to eliminate bad actors, the rule also eliminated professional discretion. Today, loan officers can’t adjust their comp to match a competing offer. They can’t offer flexibility on bond loans. They can’t even absorb the cost of their own mistakes.
And many argue that the rule is no longer protecting the consumer, it’s punishing them.
The CHLA white paper: A flashpoint for reform
In June 2025, the Community Home Lenders of America (CHLA) released a white paper calling for specific reforms:
- Allow LOs to voluntarily lower comp in competitive situations
- Exempt bond/HFA loans from rigid comp rules
- Permit lender discretion in cases of LO error
- Recalibrate the rule to target inter-company abuse, not internal pay structure
While some praised CHLA for restarting the conversation, others saw it as a thinly veiled shot at brokers.
Brendan McKay, Broker Action Coalition, didn’t hold back: “This wasn’t reform. It was a tired ‘blame the broker’ narrative… lazy, inaccurate, and frankly disappointing.”
Rob Pieklo, President & CEO at AFR, called the paper “a poorly crafted attempt to take shots at a channel,” arguing: “Choice is what matters, for originators and consumers. Competition is good for everyone.”
Others were more supportive, albeit cautiously.
Steve Majerus, CEO of Synergy One Lending, said: “If our loan officers had the ability to match pricing, that would be reasonable and appropriate. A simple change with real consumer impact.”
Where Policy Meets Pain
Many of the most vocal leaders weren’t just critiquing policy, they were confronting its daily impact on operations.
Dana Peznowski, Chief Risk Officer at Towne Mortgage Company, laid it out plainly: “The rule removes incentives for accuracy and forces lenders to absorb the cost of LO mistakes. Those costs are ultimately priced into loans. That’s an indirect consumer penalty.”
Greg Sher, NFM Lending, added: “LOs get discouraged and leave the business because they can’t compete like every other line of work. They’re handcuffed, even when they’ve built trust with the borrower.”
Ken Perry, CEO of Knowledge Coop, noted a troubling trend: “Without consistent enforcement, bad actors win. Ethical lenders follow the rules and lose deals.”
The compliance challenge isn’t just philosophical. It’s structural. And it’s leading to inconsistent interpretations, unclear APR disclosures, and channel-based discrepancies that erode consumer trust.
The statutory reality
It’s important to acknowledge what Al Pitzner and Justin Wiseman both made clear: this isn’t just a regulatory issue. It’s embedded in statute.
“If the CFPB rescinds the rule without congressional action,” Pitzner warned, “the industry would lose its safe harbor protections and face greater uncertainty under Dodd-Frank.”
Wiseman, VP and Managing Regulatory Counsel at MBA, agreed: “MBA supports targeted reforms, but we need to be honest about the complexity. Without clear statutory changes, any rollback risks more confusion.”
The credit union lens
From the credit union side, Kate McDougal of Lake Michigan Credit Union raised a unique concern: “We don’t have shareholders. Our mission is to return value to members. But the current LO Comp rule handcuffs us from offering lower rates or fees, even when it would help a member qualify.”
She added: “When rules designed for large, for-profit institutions are applied to credit unions without nuance, the people who suffer are the very members we’re trying to help.”
What happens next?
This isn’t about deregulation. It’s about modernization.
It’s about giving LOs the tools to compete transparently and fairly, without creating new risks for consumers or tilting the field toward one model or channel.
And it’s about one voice.
This is our opportunity to stop fighting about fulfillment methods and start fighting for the people we serve. To work together with lawmakers on a framework that balances oversight with practicality.
To create consistency, fairness, and flexibility across the board.
As Paul Flynn said: “Reform shouldn’t change how you show up. It should allow you to show up more flexibly, more competitively, and with more trust.”
Let’s not miss this moment.
Brian Vieaux is the President and COO of FinLocker.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
To contact the editor responsible for this piece: [email protected].
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