What is “fair” compensation for a loan officer at a broker, mortgage banker, or bank on a mortgage? Is there a specific dollar amount, or percentage of the loan amount that you would consider acceptable? Is $250 a big enough “paycheck”? $500, $1,000, $2,000….. What about $7,000, more...?
In a press release, the Federal Reserve proposed significant changes to Regulation Z (Truth in Lending. I am not surprised they (the fed) are doing this. The government now has the ability (Fannie and Freddie are in conservatorship) to look at loan files. For those outside the mortgage industry, this means that the government is looking at the unverified income (for stated income loans where the treasury did not receive applicable tax revenue), and mortgagors who repeatedly refinanced their homes over the last decade. Some of those borrowers may have lost their homes, but the loan officer on those transactions got paid.
Originator compensation at some companies was not commensurate with the benefit the borrower recieved. Higher commissions were possible, even encouraged at some companies. The Federal Reserve is undergoing an extensive overhaul of consumer regulatory disclosure rules and restrictions that could limit loan originator compensation based on loan terms. I have never been able to stomach the $7,000 paychecks, and in fact make very modest income on the loans I close. However, while I support consumer disclosure, transparency, and regulation that insures the homeowner is informed about financing choices, this is a significant issue that goes a little farther than disclosure.
From the outside, the rule would restrict all originators from steering consumers into products that would provide an originator a higher compensation. There is a 120 day window for comments on the proposed rule changes. However, as a commissioned “sales person”, and as an American, I have a problem with the general idea of limits on loan officer compensation. The unintended consequence of this regulation will create a bigger problem - not only for the loan officer, but for us all.
Limits on compensation will limit the talent and technological advancement in the mortgage industry. Many of the good originators have a four year college degree in business or finance, plus expenses for licensing and continuing education. Good originators are involved in their local community and have contributed to the growth of their neighborhood by facilitating construction and lending activities. How many of these educated originators will stay in the business when compensation is limited?
If you are a self employed business owner, do you want the experienced educated loan officer working on your mortgage (making a six figure annual income), or a low wage order taker? And what’s that worth to you? (comments welcome).
Mortgage Banker Association of America press release on changes to Regulation Z (Truth in Lending).
Comments
THEY ARE OVERPAID !!!
educated my ass. they dont even have a college deggre. they are the parasites of the society. they suck our blood and get away with it, thanks to our government.
I loved your article. It's like anything else. Going to the doctor, utilizing a lawyer or even as simple as going to McDonalds or buying a steak. Which does one prefer and do you want to utilize someone who is not knowledgeable or someone who knows what they are doing on your side.
We all can't buy steak everyday, but a home is a big purchase. If you want the right loan and you want it packaged professionally so there are no issues you need someone who's experienced and knows what they are doing. I found your article refreshing.
I'm an experienced loan originator and branch manager for a medium-sized mortgage lender (13 years in the business) and father of six young children. I'm really concerned that limiting loan officer compensation will make it extremely difficult to support my family on a single income. And I'm not talking about needing to make 6-figures a year. I'm worried that making even $50,000 gross annual income will be very tough... So, you may end up seeing experienced people, like me, doing this only part-time or dropping out of the industry altogether. Consumers will be left with fewer lending choices, slower service, and stuck working primarily with bank-based loan officers who make barely more than a teller and are either very young with no experience and limited expenses or partially retired loan officers who don't need to support a family. It's going to be interesting trying to get a loan done on time...
As a loan officer both thru a broker and a bank, we are going down a slippery slope here. Why should loan originators income be limited by the government. What about stock brokers, car salesman and any other type of commission sales? The whole industry has a black eye because of the housing mess. The reason, greed from the loan officer to Wall Street. Plain and simple.
Now if we limit income for one profession what to stop adding another preofession or two? The system is not perfect but what system is.
It is easy to say we need to do something about this and that until it affects us. I don't like Citibank paying 5 billion in bonus to people that damn near brought the whole global ecconomy to its knees in Jan. Are we going to tell them how much money they make and who they pay our money to?
Funny thing is we own 30% of Citibank and nobody asked us taxpayers if we were ok with.
I am concerned that commissions for loan officers were responsible for a significant deal of the financial trouble we, as a nation, are in today; with an eye on commission, very little attention was paid to the actual viability of the borrower. I understand that a loan officer has costs and families, but, so do we who apply for the loan. Closing costs are outrageous, and that is on top of what the bank is already making through interest and various other banking fees. C'mon, just because I pay the loan officer more, he's gonna get me a better deal? I don't think so. The deal they are looking for is the one that will line their pocket with a fee. I know what my doctors and lawyer's costs are, I know approximately how much of my fees goes to doctor's assistants and legal secretaries. I have no clue what bankers and loan officers do with my money, or if they even really help me. All I see are fees, Fees, FEES.
Please folks. I have heard some good comments on this and some very poor comments. I have been a loan originator both with very large banks and with smaller broker shops for the past 9 years. I agree that their have been rogues in the business, but it is fair to say their are rogues in EVERY business. In my office alone, about 90% of us have 4 year degrees and some have post grad degrees. Frankly, in an IQ test I would put many of my colleagues against anyone else. To assume that because a few brokers came from the wrong side of the tracks and thus all brokers are scum is assinine. Limiting compensation say to $500 will be detrimental to everyone. I am not prepared to make $10 an hour, and neither will many highly trained people. It will make originating an entry level position covered by $10 an hour order takers. Or worse.....you will be calling Mumbai or Shanghai where they will work for $10 a day. And what about REALTOR compensation!! Please, 6% to sell a home!!!
I urge congress to strongly consider the ramifications and unintended consequences that the changes they are proposing will have on mortgage professionals as well as on the consumer.
By disallowing incentive compensation for a loan originator, you remove the motivation for that loan officer to perform his or her duties for the client in a timely, streamlined, and professional manner. My biggest concern is that we
will end up with "order takers" completing loan applications with consumers through a 1-800 number, one size fits all scenario where the client is given no real education about the loan options available to them or given solutions to their particular situation.
I have been a mortgage originator for 26 years. For the first 10 years I worked 80 hours per week building my book of business.
If our compensation is controlled by the government then whose next, Physicians, Attorneys, small business owners....?
Think about it. Are we a Capitalistic Society or what?
Im sorry but if you have ever been in mortgage banking you would never say they are over paid. We work mad hours, holidays, no vacations. We have no time for family, friends, fun, nothing but loans. Everything needs to have been done yesterday. Imagine working on something for hours on end sometimes months on end all to have the loan denied and then you get nothing? Believe me when I say EVERY mortgage banker out there works VERY hard for the pay check that they earn!
I have been a loan officer for 13 years. I recieved my degree in Business, Finance. I feel like I have been fair with borrowers are rarely get outbid when buyers are shopping for the best deal. Some loans are more complicated and some borrowers need help with credit issues before they can qualifty. If they restrict how much I can make on a loan the harder loans and smaller loan amounts won't be worth the amount of time it takes to close these loans. These rules will make experienced loan officers not want to take on challenging loans.
I'm a licensed mortgage loan originator in Atlanta, Georgia and I am happy to see this commentary on federally mandated earning caps. I have a business degree from one of the top business schools in the country, an MBA and two years of experience in this industry. Two years...that's right. I'm 24 and got into this business just as the bottom was falling out due to wreckless and selfish behavior from MLOs before me; however, I see great problems with earning caps. I'm not saying I'm the best at what I do and I learn new things everyday, but people who think that 3% on average about $5000 per loan is too much obviously hasn't dealt with borrowers as closely as MLOs work with our clients. Don't forget that the company takes about half off the top so you're left with about $2500/ loan. What you don't see on the back side of these transactions is the processing, ordering payoffs, credit report updates, requesting docs from borrowers who never seem to be in a real big hurry, clearing credit stips, requesting appraisal stips, redisclosing every 1/8th adjustment to the APR, requesting more income stips, locking the rate, oops rates changed, redisclose again all while generating new business. On top of this you want to call me on a Saturday afternoon to find out why its taking so long nine days after you sign docs. $2500 sounds kinda worth it now doesn't it. I have friends who graduated from college with me making $50,000/yr who love their job and find purpose and passion in what they do. They feel sorry for me because of the stress in my job. They often ask why I do it. I never answer with this, but I always think, "well, it's because I make about 3x what you do in a year and yeah I put up with a lot of stress but like all things, there's a price tag." You want to be able to call me on a Tuesday at 10:00 at night because you just got a new GFE in the mail, you're gonna pay me for it. Simply put. I do apologize for the tangent, but I do appreciate your comments on this.
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