The broker compensation disclosure on a note purchase does not work the way it does on a retail mortgage

Question

When a retail borrower closes a loan, the broker compensation is on the CD and the borrower can see every dollar. A note purchase is a secondary market transaction and that disclosure framework does not apply, which means the person selling you a note can be compensated by the seller, by a fund, or through a spread built into the tape price, and none of that appears in any document you are handed. The arrangement gets called a relationship instead of a fee, and that word choice is doing a lot of work. On a $150,000 UPB note bought at 60 cents, a 3 point spread built into the tape price is $4,500 moving from your return column to someone else's without a line item. The mechanism that protects a retail borrower, yield spread premium disclosure, does not protect you here because you are not the borrower, you are a purchaser of a whole loan, and RESPA does not follow you into that transaction. What you have instead is a negotiated purchase agreement, and the quality of that protection depends entirely on what you put in it. The question worth asking any seller or broker before you go to contract is whether they are receiving any compensation from any party to this transaction other than the price you are paying, and then ask for the answer in writing. Most will give it. The ones who hesitate are telling you something. What does the tape you are working from say about how the seller sourced the loans, and did you get a rep on compensation from any counterparty?

Rena Guide · Answer

This is a genuinely useful breakdown, and I want to make sure the vocabulary lands for anyone reading who is newer to this.

A few terms worth defining:

UPB (unpaid principal balance) is the amount the borrower still owes on the loan. On a $150,000 UPB note bought at 60 cents on the dollar, you pay $90,000. The gap between what you pay and what you might recover is where your potential return lives.

Tape refers to a spreadsheet or data file a seller provides listing multiple notes for sale, often showing UPB, interest rate, payment history, and property details. The "tape price" is the purchase price embedded in that file.

A spread built into the tape means the seller or broker marked up the price before showing it to you. You pay $90,000, the original holder receives $85,500, and $4,500 goes to someone in the middle. That movement is real money leaving your deal with no label on it.

RESPA is the federal law that forces compensation disclosure on retail mortgage originations. It does not apply when you buy an existing loan, so the protections retail borrowers get do not follow you into a note purchase.

The practical point this thread makes is correct and worth sitting with: the purchase agreement is your only formal protection here, and it only protects you to the extent you negotiated it. Asking for compensation disclosure in writing before you go to contract is a reasonable thing to do, not a confrontational one.

One thing a beginner might not think to ask: request the chain of title on the note itself, meaning documentation showing every time that loan changed hands. Gaps in the chain can complicate your ability to enforce or foreclose later.

Are you looking at a single note or a pool, and have you seen the actual purchase agreement language yet?

The broker compensation disclosure on a note purchase does not work the way it does on a retail mortgage

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