1099 vs W-2 employee for a mortgage net branch

This is a very important topic that many net branch companies do not want to address.

Q. Can you work for a mortgage net branch company and be paid all or part of your income as a 1099 contractor?

(There are many companies telling prospective branch managers that this is OK – legal – and that everyone at the branch can be paid by 1099.)


Many companies are also paying loan officers and managers as 1099 contractors on FHA and VA (HUD) loans.


Let review the 2nd issue – Originating HUD (FHA/VA) loan and being paid by 1099.

Read this summary memo from HUD regarding an audit to determine if independent contractors are being use to originate HUD loans.

Summary Link

It is absolutely clear that this is an illegal practice.

Now let’s address the more general practice of paying branches and loan officers as 1099 contractors. Many people think that it’s OK if you are not originating HUD loans.

The defining source for this is the Internal Revenue Service.

Many state are silent on this issue, and even if they allow it the federal government does not.

The IRS has a form called SS8 it is a 20 question form to determine if an individual qualifies for 1099 contractor status. No loan officer has ever qualified for 1099 independent status.

Here is another link to the IRS that covers this question in detail.
Topic 762 – Independent Contractor vs. Employee

To determine whether a worker is an independent contractor or an employee under common law, you must examine the relationship between the worker and the business. All evidence of control and independence in this relationship should be considered. The facts that provide this evidence fall into three categories – Behavioral Control, Financial Control, and the Type of Relationship itself.

If the company requires you to use specific forms, requires you to use their vendors – appraisers, title companies, investors, etc., if must put your loans through their company, if you work under their license, you are not an independent contractor you are a W-2 employee.

If you are working as a 1099 loan originator you could be subject to large fines from the IRS.

Does the company I represent pay people as 1099 contractors? Absolutely not!

As you consider a net branch company to work with make sure you are picking a company that is in compliance with the rules and regulations we all have to follow.

Even if you are not conducting your business this way if your company is and they get caught you will be left out in the rain with everyone else in that company.

I always appreciate subscribers and welcome comments and questions.

For more mortgage net branch information visit:


  1. Heather, I know that this is big problem in California because the DRE licenses mortgage loan officers and real estate agents. Agents are paid by 1099.

    In 1997 Alan R. Seher of the law firm Weiss & Weissman, San Francisco, California wrote an article titled “IRS RULES MORTGAGE BROKERS ARE EMPLOYEES”.
    In the article Attorney Seher explains the IRS ruling and how it affects loan officers in California.

    Here is a link to the entire article. I hope this helps!

  2. HC says:

    Thank you for this article. Would you be able to sight IRS or CA State Code for information specifying mortgage bankers and originators should be W-2 (Other than SS8) as opposed to 1099? We feel it is important for us to have the actual code to back us up.

    Thank you much.


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