Early Payoffs and Clawbacks

With the recent decrease in interest rates, mortgage loan originators (MLOs) are prompted to reevaluate a lesser-discussed aspect of their profession – Early Payoffs (EPOs) and the associated clawbacks. Over the past two years, rising interest rates rendered EPOs a negligible concern for MLOs across the nation. However, the current downward trend in rates necessitates a closer look at this critical topic.

Early Payoffs, occurring when borrowers refinance or settle their loans before a pre-established timeframe specified in the broker or secondary agreement, give purchasing lenders the authority to claw back commissions. This safeguard is designed to shield lenders from revenue loss in instances where loans are repaid sooner than anticipated.

Given the shifting interest rate landscape, MLOs are advised to revisit their compensation agreements. Understanding the timeline associated with EPOs is pivotal for effectively managing potential clawbacks. A thorough review of the agreement ensures that MLOs are well-informed about the conditions triggering clawbacks.