Loan officers get paid more when they work for independent mortgage bankers than when they work for banks, according to a recent report, but federal guidelines dictate that pay in part, and those guidelines could coming under increased federal scrutiny. What does this portend for the market? Mortgage lenders, including in-house counsel, compliance personnel, financial advisors and wealth managers should stay abreast of what the Consumer Financial Protection Bureau (CFPB) rules are, even as that agency’s future is shaky.
“The bonuses lenders pay support staff for loans have skyrocketed—and there are no signs that it will normalize anytime soon,” reported National Mortgage News. “Total bonuses paid to loan officer assistants, processors, closers and managers have nearly doubled in the past year, averaging $599 per loan in the first quarter.”
Pay went up, the site stated, as lenders added support staff to help out with originations and as the industry consolidated following a big year.
Compensation Doubled Between 2015 and 2016
But loan origination compensation is complicated, noted one industry watcher.
“Because of the close ties between origination volume and branch performance, LO comp data can provide key insights into profitability at the branch level…if you can get to it,” said one compensation expert. “With many lenders still managing compensation via spreadsheets, this data could exist across a handful of areas within the organization, creating walls where there should be windows and inhibiting visibility into individual branch performance.”
While compensation is up overall, there is some nuance to the figures, said National Mortgage News.
“On a per-loan basis, loan officers working for bank-owned/affiliated mortgage companies make an average of 74 basis points per loan of the amount. Their counterparts at independent mortgage bankers make an average of 120 basis points,” the website said. “The lower compensation level from a bank-owned lender is partially offset by branding as well as marketing support those companies provide to their loan officers.”
The Feds Keep Hinting at Increased Scrutiny
CFPB has repeatedly warned that compensation will be the focus of increased oversight, though those in the industry say so far not much hay has been made.
“We expect you to pay exceptionally close attention to servicing transfers and understand we will as well,” said CFPB Deputy Director Steven Antonakes. “Our rules mandate policies and procedures to transfer ‘all information and documents’ in order to ensure that the new servicer has accurate information about the consumer’s account. We’re going to hold you to that.”
The increased focus on oversight stems in part from hanky-panky in the industry, the National Law review stated.
“Compensation for loan originators is under heightened scrutiny, especially in light of recent enforcement actions and civil money penalties that focus on incentive compensation more broadly,” the site said. “Financial institutions must conduct periodic reviews and conduct ongoing monitoring of their compensation practices, including the potential incentives created.”
Compensation Issues to Focus On
While it remains unclear whether the CFPB will even be around much longer, at least not in its current form, there are still lingering and renewed questions about what is allowed and what is prohibited that can expose mortgage lenders to increased risk. And competition for good loan originators means that companies must look to innovative compensation strategies.
Staying on top of your compensation policies means paying close attention to the following issues in the coming days:
- Can you pay your loan originators differently for special loan programs, like state housing finance agency assistance programs, jumbo loans and reverse mortgage loans?
- Some branch managers are producing and some are nonproducing: How can you compensate them both with incentives for production and cost-controls?
- How can you hold loan originators responsible for repeated tolerance violations or buyback costs?
- What will the CFPB be looking for, and how you can be prepared?
- What about overtime?