What is "dual compensation" in the context of mortgage origination?

In the context of mortgage origination, dual compensation refers to a situation where a Mortgage Loan Originator (MLO) receives payment from both the borrower and the lender for the same transaction. This practice can lead to conflicts of interest, as the MLO may have incentives that do not align with the best interests of the borrower. Regulations, such as those implemented under the Dodd-Frank Act, aim to limit this practice to protect consumers and promote transparency in the mortgage lending process.

The focus is on ensuring that MLOs adhere to ethical standards and do not engage in practices that could result in unfair treatment of borrowers, such as receiving compensation that could incentivize high-cost loans or terms. Since options regarding the MLO working for multiple lenders or receiving payments for different services do not encapsulate the essence of dual compensation, it clarifies why the understanding of dual compensation specifically ties back to the MLO being compensated from both parties involved in the lending process.