If you think it is confusing now to get a mortgage, just wait a few weeks when the new requirements under Dodd-Frank go into affect. At that point, borrowers and brokers will need to decide how a broker gets compensated. The choices will be (i) through the lender or (ii) by the borrower. Now, of course, at first blush everyone wants to rush to say pay should be from lender. And, in the past, that would have been true.
However, as Dodd-Frank is attempting to level the playing field (in a clumsy, inartful and what I believe ultimately will be unsuccesful attempt), by requiring lenders to compensate brokers the same (percentage-wise) on every loan, things will be getting a lot more interesting. By interesting I mean, more difficult but, in this case, possibly less expensive. Borrowers will be given 3 different types of loan options including one with the lowest closing costs, one with the lowest rates and one with the lowest points. They will be allowed to choose among these choices. Also, brokers will need to disclose the fee they will be getting paid by each lender with borrowers getting the benefit of lower rates.
This will come at the cost of (i) service and (ii) the ability for smaller borrowers to go to brokers and bankers. Since compensation from lenders will be fixed on all loans, the only way brokers can do smaller loans will be to charge the borrowers. This will create a situatioin where small loans are not getting competitive costs (though they will be getting very low rates) from brokers. It will result in the banks making these loans.
So, the exact opposite of what the banks hoped would happen by putting pressure on the brokers will happen. Mortgage brokers will become specialized, operations catering only to the mid and upper level borrowers. Since they will no longer be able to vary their compensation (which is necessary when handling smaller loans as 1% of $1M is significantly more than 1% of $100k), these borrowers will go to the banks. As the banks now are not known for top notch service (to put it kindly), it is hard to envision their service getting better when they will need to work on more loans to make the same money.