Can my lender make me pay back their profit after I paid off my mortgage early?

Based on what you've described, I would not send the loan officer $4,700 simply because they're asking for it. If your mortgage documents don't contain a prepayment penalty or another provision requiring you to reimburse the lender for an early payoff, a compensation clawback between the loan officer, lender, and investor is generally a separate issue from your obligation under the mortgage. A YSP or similar lender compensation arrangement is typically part of the compensation structure between mortgage professionals/lenders and the parties involved in selling or funding the loan. It isn't automatically something that can be passed on to the borrower after closing just because the borrower paid off the loan early. That said, don't rely solely on the loan officer's text messages or your interpretation of the closing documents. Have a Minnesota real estate or consumer-finance attorney review your Note, Closing Disclosure, Loan Estimate, and any other signed loan documents to confirm whether there is actually any contractual basis for the demand. I would also ask the loan officer to provide, in writing, the exact contractual provision that supposedly requires you to pay the $4,700 and an itemized explanation of the charge. Don't sign a new agreement or acknowledge that you owe the money without first having it reviewed. If they continue demanding payment, I would escalate the issue to the lender's compliance/legal department, rather than negotiating directly with the individual loan officer. Keep all texts, emails, closing documents, and payoff records. And congratulations on paying off the mortgage—becoming debt-free two months after closing is a pretty good problem to have. The important thing now is making sure an agreement between the lender and its investor isn't being incorrectly turned into a bill for you. Juan Picos Real Estate Agent JohnHart Real Estate

Unfortunately for them, that's not on you. Typically 6 payments need to be made for the lender to "keep" their compensation for doing the loan. Congrats on being debt free!

Rosalind, if there’s nothing in your loan documents requiring you to repay that money for an early payoff, I would not pay it. A compensation clawback between the loan officer, lender and investor generally isn’t automatically your obligation. If they continue demanding the $4,700, have an attorney review your closing documents before paying anything.

Rosalind, if your loan documents show no prepayment penalty or other repayment obligation, I would not pay the loan officer simply because their compensation was clawed back. That is generally an issue between the loan officer/lender and the investor, not automatically your responsibility. If they continue demanding payment, have an attorney review your loan documents before paying anything.

Rosalind, that is not your debt. Do not pay it. What happened is an EPO clawback, meaning early payoff. When a loan pays off within a set window, commonly 90 to 180 days, the investor who bought your loan claws back the premium it paid, and the lender in turn claws back the loan officer's commission under his compensation agreement. Every one of those relationships is between the lender, the investor and the loan officer. You are not a party to any of them. Three reasons this cannot be charged to you. Your note controls. You checked it and there is no prepayment penalty. Under federal rules a qualified mortgage generally cannot carry one on an owner-occupied loan anyway. Absent a prepayment penalty term, the lender has no contractual right to charge you anything for paying early. It was never disclosed. Your Loan Estimate and Closing Disclosure are the exhaustive statement of what this loan costs you. A charge that appears on neither cannot be invented after closing. That is the entire point of those forms. Loan originator compensation is regulated separately. Reg Z, 12 CFR 1026.36(d), governs how a loan officer gets paid and by whom. His compensation arrangement with his employer is not a consumer obligation and cannot be shifted onto you. You did nothing wrong. You paid your mortgage off. That is allowed. What I would do, in this order: Stop responding to the texts. Send one written message saying you consider the matter closed and asking that further contact go through his employer's compliance department. Then stop engaging. Keep every text. If it continues, contact the lender's compliance department directly, not the loan officer. Companies take this seriously because it is a real regulatory problem for them. If it still continues, file a complaint with the Consumer Financial Protection Bureau and with the Minnesota Department of Commerce, which licenses mortgage originators in your state. Both are free and take about fifteen minutes. I want to be straight about the human side. He may genuinely be out 4,700 dollars, and that is a hard thing to absorb. It is still not yours to cover, and a licensed originator asking a borrower to pay it is a serious lapse in judgment. I am Zoltan Peresztegi, a real estate professional serving the South Bay and greater Los Angeles. I am a real estate professional and not an attorney, so if he escalates further, a short consultation with a consumer finance attorney is worth it. But congratulations on being debt free, and keep the texts. Zoltan

The lender or loan officer may have had an agreement with the investor requiring the return of some compensation if the loan was paid off shortly after closing. But the fact that the loan officer lost compensation because you paid off the loan early does not, by itself, make you responsible for replacing it. A prepayment penalty is different. That's a fee a borrower agrees to pay for paying off a mortgage early. If your note and Closing Disclosure show no prepayment penalty, I would ask the loan officer to identify, in writing, the specific provision in your loan documents that supposedly requires you to reimburse this $4,700. I would not agree to pay it simply because the investor clawed money back from the lender. If they continue to demand payment or threaten collection, it may be worth having a real estate or consumer attorney review the loan documents. Paula Brown, REALTOR® Keller Williams Realty La Cañada Flintridge CA DRE #02235865 ABR® | GREEN | SRES® | Probate & Trust Specialist Serving La Cañada Flintridge, La Crescenta, Glendale, Pasadena, and nearby communities.

Rosalind, that sounds stressful, especially right after doing something as good as clearing the loan. I can't tell you where you stand legally, but I can tell you what I'd do first. Move the conversation into writing and stop answering angry texts, because a paper trail matters if this escalates. Save your loan file and every message he's sent you. A yield spread premium clawback is an arrangement between the originator and the investor, and whether any of it can reach you depends on what you actually signed, which is exactly what a real estate attorney in Duluth can tell you in one short consult. Plenty of them will review loan documents for a flat fee. It's also fair to take this to the lender's compliance department instead of the loan officer. I work in California, so let someone licensed in Minnesota confirm the local details. Alla Novytska, Realtor®, JohnHart Real Estate, DRE #02254775

Rosalind, if you do not have a pre-payment penalty or clause in your mortgage agreement, you should be fine but a real estate attorney should be able to advise you for certain. Good luck. Keith Jean-Pierre Managing Principal The Dapper Agents Real Estate Operations in ALL 50 States

Yes, your instinct is generally right. If you paid off your conventional mortgage early and your Note, Closing Disclosure, and other loan documents do not contain a prepayment penalty or any provision requiring you to reimburse the lender for an early payoff, your loan officer generally cannot just create a $4,700 bill after the fact. A YSP or investor clawback is typically an agreement between the lender and the investor, meaning the lender may have to give back compensation because the loan paid off quickly, but that does not automatically make the borrower responsible for that amount. I would not pay anything based solely on a text message. Ask the loan officer to provide the specific signed document and provision that says you personally owe the $4,700, along with an itemized explanation of the charge. If there is no such provision in the documents you signed, the fact that the loan officer lost compensation does not by itself create a debt you agreed to pay.