Wednesday, April 17, 2024

Unethical or Illegal? Dual Agency/Dual Capacity, Double Compensation in Loan Origination

Updated 4/17/2024

It seems obvious, but the fact that an originator might represent someone else's interests in a transaction creates an inherent conflict of interest. The real estate agent works for the seller, and the loan officer owes his fiduciary responsibility to the borrower. Conflict occurs when the loan originator can receive compensation elsewhere in a transaction besides the mortgage, such as:

  • real estate commission
  • insurance sale
  • title/closing/escrow transaction
  • appraisal/valuation
  • financial services
  • accounting
The question at issue: whether it's merely unethical to "double-dip" or illegal and prohibited? The answer lies in the location of the property. If your state prohibits dual agency or has rules against dual compensation, then it's illegal. 

Since acting as a real estate agent (where you represent the seller) and a loan officer (where you represent the buyer) is a conflict, you should not allow both. However, it may be acceptable for you to have a business where you actively sell real estate as a licensed real estate agent and separately originate loans as a licensed mortgage loan originator. There is no conflict if you recuse yourself from participating in the transaction. 

Loan Originator Compensation Rules

In a conundrum for "true" buyer brokerage (where the buyer pays the agent's commission), dual agency cannot exist due to the requirement that the borrower cannot pay the loan originator anything outside of the commission on the loan. If you recuses yourself from the fee, it appears this would be acceptable. 

Is it acceptable to Have a Real Estate License?

Mortgage originators with a real estate license sometimes find it easier to generate business because their experience in real estate adds professional credibility to real estate agent referral sources. However, this does not mean the mortgage company or bank finds this acceptable. The POTENTIAL for conflict creates enough possible risk to lead the mortgage company to create a hiring policy that prohibits this arrangement unless the license is affirmatively inactive. 

This stems from the fact many secondary market contracts and loan purchase eligibility warranties often cite the requirement for no conflict of interest in the loans sold or purchased. The mere existence of a conflict can require a lender to repurchase a loan, regardless of whether there was a negative outcome. 

FHA Allows it - USDA Does NOT

Recently FHA Clarified that it WOULD allow non-credit (not underwriters, valuations, quality control, etc.) related parties to act as both agent and loan originator. However, on 3/31/23, USDA clarified this was a conflict of interest and specifically DISALLOWED this. 

Dual agency in Real Estate Transactions Prohibited

Eight states have made dual agency in real estate illegal: Alaska, Colorado (although dual capacity for LO is allowed), Florida, Kansas (allowed for broker), Maryland (Prohibited from receiving finder's fee -aka broker fee), Texas (Dual Capacity For LO allowed), Wyoming, and Vermont. This is one indicator that, regardless of role, a loan originator who is also a real estate agent could run afoul of this. Some states allow what is known as "Dual Capacity."

Real Estate Rules Where Undisclosed Dual Capacity is a Violation

Massachusetts Massachusetts also does not allow acting as a real estate attorney and a broker on the same transaction. 

States that may specifically disallow Dual Capacity

Maryland - No "double dipping"

States that do not specifically disallow Real Estate Agents and Originators to Receive Commissions on Both Transactions - known as "Dual Capacity."

Arizona (Mortgage Broker License)
Colorado - With Proper Disclosure
Kansas - If properly disclosed
North Carolina (maybe)
Texas - With proper disclosure

We will add to this list or you can send your citations as we collect more information.

Affiliated Business Arrangement Disclosure

At a minimum, the relationship must be disclosed using the Affiliated Business Arrangement Disclosure (AfBA). Further, there should be a prominent disclosure that the customer receives services and pays fees to the same individuals for multiple services. 

Unless it's Specifically Codified - Best Practices Dictate "Don't Do It."


“Required Disclosures by State - American Mortgage Network.” American Mortgage Network - Funding The American Dream, 22 Nov. 2022,

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