One of the root causes of the current crisis in the U.S. mortgage sector is arguably the upfront compensation of mortgage brokers. That's because brokers typically are paid hundreds or thousands of dollars when the loan is originated, but have no stake in whether the lender or investor then collects payments from the borrower for three months or 30 years. Brokers who churn mortgages can earn more income even if the new mortgage offers no true benefit for the borrower.
Insurance agents, on the other hand, may earn small slices of the insured's premiums as long as each policy is in force, and those payments can continue even if the agent never performs any additional services for the insured or the insurer. The upfront commission may still create some incentive to churn policies, but the ongoing revenue creates a counterweight incentive to write good policies that will be renewed year after year.
So, should mortgage brokers be compensated more like insurance agents? It's a provocative idea.