How Loan Officer Commissions Work on Denied and Withdrawn Applications

The world of mortgage and loan origination is driven by commissions, making the compensation structure a focal point for both industry professionals and consumers. A common and crucial question that arises is whether loan officers get paid on applications that are ultimately denied by underwriting or withdrawn by the applicant. The short answer is generally no; loan officers typically do not receive their primary commission, often called a “bounty,“ on loans that do not close and fund. However, the full picture is more nuanced, involving base salaries, potential chargebacks, and the indirect value of every application.

The cornerstone of a loan officer’s income is the commission earned upon the successful closing of a loan. This compensation is usually a percentage of the loan amount, serving as a direct incentive to secure viable, approvable applications and shepherd them through to completion. Since this payout is contingent on the loan funding, a denied application represents a significant investment of time and effort with no direct monetary reward. The underwriting denial indicates the loan did not meet the lender’s or investor’s criteria, a risk the loan officer is expected to assess upfront. Therefore, the commission-based model inherently aligns the officer’s financial interest with producing fundable loans, not merely collecting applications.

Similarly, when an applicant withdraws their application before closing, the loan officer usually forfeits the commission. Withdrawals can occur for many reasons—the applicant finds a better rate elsewhere, their personal circumstances change, or they become dissatisfied with the process. Regardless of the reason, the outcome is the same: no closed loan, no commission. This aspect of the structure underscores the importance for loan officers of maintaining strong communication and service to keep applicants engaged and committed throughout the often lengthy and complex process.

While the direct commission is lost on denied or withdrawn files, it is inaccurate to say loan officers gain nothing from these scenarios. Many loan officers, particularly those working for large banks or institutions, may receive a modest base salary intended to cover some of their time spent on non-producing activities, including working on applications that do not close. More importantly, every interaction holds potential future value. A denied applicant today may qualify after improving their credit score, or a withdrawn applicant might return in a year. A professional and helpful experience during a denial can foster loyalty, leading to referrals or future business. Thus, while not immediately lucrative, ethical loan officers understand that treating every application with care is a long-term professional investment.

There is also a critical financial risk known as a “chargeback” that can further impact compensation. If a loan closes and the officer is paid a commission, but the loan then pays off or refinances within a very short period (often 90 to 180 days), the lender may “charge back” all or part of that commission. This policy protects the lender from losing money on loans with extremely short lifespans and discourages loan officers from encouraging borrowers to quickly refinance solely to generate another commission. In a sense, a chargeback retroactively turns a funded loan into a financial negative for the officer, emphasizing that their financial success is tied to sustainable, long-term customer relationships.

In conclusion, the standard commission structure in mortgage lending is designed to pay for results, not activity. Loan officers do not receive their primary commission on denied or withdrawn applications, as their income is fundamentally tied to the successful funding of a loan. This system incentivizes thorough pre-qualification and diligent process management. However, the profession is not solely about individual transactions; it involves building a pipeline and a reputation. Therefore, while a string of denials or withdrawals hurts immediate earnings, the professional handling of those situations can contribute significantly to a loan officer’s longevity and ultimate success in a competitive field.