Essentially, an EPO is when the wholesale lender charges back the broker for any/all compensation if a borrower pays off the loan before the end of their loan term.
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Hello, LOs! I was chatting with a few mortgage brokers last week about the pros and cons of the channel. The pros were largely the same, and the cons were, too. Let's talk about the con that kept coming up: the dreaded early payoff.
Essentially, an EPO is when the wholesale lender charges back the broker for any/all compensation if a borrower pays off the loan before the end of their loan term, typically a year or less.
Wholesale lenders say a clause in broker contracts dissuades them from "churning" borrowers, refinancing them into new loans and racking up commissions even if it's not in the borrower's best interest.
But in a lot of cases, there's nothing the broker can do about a borrower paying the mortgage off early. An Oregon broker told me recently that he had a client get a dream job in California roughly four months after closing on a property in the Portland area. The borrower quickly sold the house, paid off the mortgage and moved down the coastline, leaving the broker with a fat EPO from the lender.
Because qualified mortgages do not permit prepayment penalties to borrowers, the broker is the one who gets penalized. One mortgage broker earlier this summer described it as a "loophole" for lenders to violate the QM rule.
"Was the intent of Congress to harm mortgage brokers? Of course not!" he said. "But, they need to make it law that there can be no recourse for early payoff to any party from the primary market cycle."
Brokers, I'd love to hear from you all about this subject. What do you think about EPOs? And what do you do when a client pays off the mortgage early and you get hit with an EPO from the lender? Email me anonymously at jkleimann@housingwire.com.
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