What type of compensation might indicate a potential conflict of interest in a mortgage loan transaction?

Compensation that is commission based on loan amount can indicate a potential conflict of interest in a mortgage loan transaction. This type of compensation structure may motivate the loan originator to prioritize their own financial gain over the needs and best interests of the borrower. If the originator earns a percentage based on the size of the loan, they might encourage borrowers to take larger loans than necessary or promote products that aren't the most suitable for the borrower's financial situation. This situation can lead to ethical dilemmas, as the originator’s income is directly tied to the loan amount, potentially overshadowing the borrower's needs for a responsible and affordable mortgage solution.

Other compensation structures, such as a flat fee per loan or salary regardless of the loan volume, typically promote a more ethical approach because they do not encourage the same level of self-interest. Incentives for closing loans quickly can also create pressures that may lead to rushed decisions, but they do not inherently create a conflict related to the loan amount.