Branch managers who have historically been paid on a true profit/loss model are increasingly pressuring their employers to consider them “non-originating” in order that they may be paid based upon branch profits. Hence, the managers tell the lender they will no longer "originate" loans, thereby enabling them to receive branch profits.
While this seems like a simple win-win solution, the fact of the matter is that what a lender does not know can hurt them. "Originating" activities include negotiating or offering any loan terms and assisting the borrower in obtaining financing. Moreover, a manager is an originator once the manager "originates" one loan. Accordingly, a lender that is hiring a manager as a non-originator has to be confident that the manager will not even once cross the line into originating activities. If the manager does in fact "originate," the lender is at-risk on all of the loans closed by that branch.
What makes the situation even worse for the lender is that the manager virtually has no risk. Indeed, because HUD typically prohibits any type of indemnification of lenders by employees, even if a lender wants to impose some type of monetary responsibility for originating against a manager, regulators will not permit it. Thus, a lender ends up with a situation where an employee used to originating is promising not to originate, although they have no responsibility financially if in fact they originate loans from time to time. Of course, the lender-who may be geographically distant from the particular branch-has very substantial liability unless the branch manager uniformly avoids origination activities.
While strong contracts, policies and procedures go a long way to protecting companies, they are not a substitute for common sense. From time to time non-originating branches can be appropriate, however, they are not a "solution" to paying profit to managers who truly want to continue originating loans. Lenders who want to pay managers creatively and fairly have many options. However, looking the other way and hoping for the best should not be one of the options considered.
