Hey, loan originator employees at the bank or lender shop, did you ever wonder what your boss is up to when they visit members of Congress or the CFPB? Hint: it is not good for your wallet! Several were recently in Washington DC trying to convince the Consumer Financial Protection Bureau CFPB (thank goodness they kept that name) to permit them to cut your pay. Yes, you read that right, CUT YOUR COMMISSION.
I found this almost a Twilight Zone experience after I thought about it for a few minutes and communicated to CFPB staff how bizarre it is for the employers, who do not have a fixed compensation and can raise fees and rates at their discretion, trying to reduce the income of their employees that have a fixed commission rate set by the government! This is where we end up in a world where the government imposes price controls, we get the stronger well-organized companies, targeting the worker/employee pay in order for the corporation to keep more of the mortgage origination pie. When your boss tells you how there is price compression and they need cut into your set commission for any mistake or the need for you to drop your commission to compete for that consumer, run. This means their operations are probably not that efficient, management heavy, they are likely bleeding cash, and will lay you off soon anyway. Reducing their operational costs and efficiencies are what they should be doing on their side of the equation not reducing your “set- in-stone by the Federal government” compensation. They should be dropping their fees (or increasing them to stop bleeding cash) or rates to help you compete not the other way around. Banks and Lenders should be trying to use technology to become more efficient and compete in the marketplace.
A better approach would be start with removing the price controls from loan originator compensation and explore new ways to prevent steering. Technology has changed since the passage of Dodd-Frank and there are third-party validation methods – pricing engines – to control loan originator steering. The industry should explore these options before we attack employee income.
The letter can be found here: MBA Letter. See if your company signed the letter to the CFPB asking to cut your commission.
MBA sent this letter with 10 pages of banker CEO’s signing on urging the CFPB to modify the loan originator compensation rules. MBA and several other lender trade groups were in Washington in January advocating for CFPB quick approval to make these changes.
The letter recommends key loan officer compensation gutting changes:
— Permit voluntary reductions by loan officers to their compensation in response to competition. The letter noted this change would “significantly enhance” competition in the marketplace, benefiting lenders who can compete for more loans and consumers who receive a lower cost loan offer. “Currently a lender will be forced to decide against making a loan if doing so is unprofitable due to the requirement to pay the loan originator full compensation for a discounted loan,” the letter said. “For the consumer, the result is a more expensive loan or the inconvenience and expense of switching lenders in the midst of the process.”
— Allow reductions to compensation when the originator makes an error. “Greater loan originator accountability will reduce errors and encourage compliance with regulatory requirements and company policy, leading to a safer, more transparent market for consumers,” the letter said. “The present rule prevents creditors from holding their employees financially accountable for mistakes or deviations from company policy on a particular loan. This is contrary to the central statutory premise underlying the LO Comp rule–that compensation is the most effective way to incent loan originator behavior.
–Allow variable compensation for loans made under housing finance agency programs. “HFA programs are particularly important for underserved borrowers such as first-time homebuyers and low- to moderate-income families who often encounter difficulty accessing credit elsewhere,” the letter said. “However, the robust underwriting, tax law-related paperwork, yield restrictions and other program requirements make HFA loans more expensive to produce. Covering these expenses is particularly difficult given many HFA programs include limits on interest rates and fees.”
Roy DeLoach is a Washington, D.C. based lobbyist with DC Strategies Group. Mr. DeLoach represents clients in the financial services and securities areas before Congress and federal agencies. He can be reached at email@example.com www.dcstrategies.us
MBA Letter: MBA-LO-Comp-Reform-Letter-Company-Leaders