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Lender-Paid or Borrower-Paid, That Is the Pressing Question

JAN 10, 2014 5:59pm ET
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WE’RE HEARING that most wholesalers will allow mortgage brokers to negotiate their fee with a borrower. They recognize that borrower-paid compensation can be beneficial in certain situations. Insisting that all compensation be capped at the lender-paid rate could unnecessarily block perfectly good loan transactions.

But in this heavily regulated industry where discretionary pricing is frowned upon, it makes no sense to set easy-to-follow guidelines.

As previously reported, Provident Funding told its brokers they can no longer negotiate the amount of their fee with borrowers.

“Borrower-paid compensation will no longer be negotiated and the lender-paid level will become a uniform broker compensation level,” Provident Funding Associates says in updating its loan officer compensation policy.

Borrowers can still pay the broker directly, but the amount of the compensation must be the same as lender-paid compensation, according to the new policy that went into effect Jan. 1.

A lot of wholesalers are considered initiating a similar policy. But one competitor who did not want to be identified said it won't become a widespread practice. He thinks Provident is just being too conservative.

The competitor's firm allows its brokers to negotiate their fee with the borrower. But the broker can't charge a fee that's higher than the wholesaler's maximum for lender-paid compensation.

If the maximum is 2%, the broker can charge less, but not more. However, that discount might be enough to cover some costs and get the loan to the closing table. But that is up to the brokerage firm to decide. The loan officer is not taking the hit. Under the LO comp rule, the loan officer receives the same compensation whether it is lender-paid or borrower-paid transaction.

Provident could not be reached for comment. But it will be interesting to see how this settles out. Comments on this issue are welcomed.

COMMENT OF THE WEEK: Naturally, this being Jan. 10, the QM is on everyone’s minds. Brent Calver posted this comment to the item we ran on how some banks (like Bank of the West)  are not shying away from interest-only mortgages (definitely NOT always going to be a QM mortgage!). Calver, president of ExpressLoan, also isn’t afraid to tout a loan product from the crisis, no doc loans: “I am glad that a major bank is stepping up and not running for the hills. As Karen Mayfield pointed out, these are safe loan products for customers (borrowers) that understand what they are getting. I hope it goes one step further and gets back to a point that some lenders will reintroduce No-Income Doc Loans. These loans, too, serve a great purpose for the right segment of the borrowing public. Namely those that are self-employed or rely on the bulk of income from commissions and that have substantial down payments (25% or more), have significant cash reserves after closing and have great credit!”

BLOG OF THE WEEK: Garth Graham seems to have come back from a short holiday rest refreshed with a perceptive blog on how the word of the year for the mortgage industry for 2014 is going to be “conversion.” He’s not talking about converting from private to equity status. He means that a lot is going to turn upside down this year, what with the Jan. 10 regs, rates rising, the Federal Reserve QE being eased, etc. The complexion of the business will turn from refi driven to purchase money driven, a very big change indeed. So, being light on your feet will definitely be an asset for this year’s new-age mortgage banker. Want to know Garth’s pick for word of the year in 2013 (and he’s not alone)? Selfie.

MOST READ/EMAILED CONTENT: This week, the same item leads both categories. It is Amilda Dymi’s reporting of research from Accenture that says mortgage lenders that lag on automation are going to lag on business too, as consumers insist on sophisticated execution on their loans. The numbers are pretty big, according to Accenture, with up to 35% of market share going up for grabs because of this in the next few years.

FOLLOW US: Often, the quickest journalistic execution is through Twitter. So, if you want access to the latest in mortgage news, follow us at @natmortgagenews. Of course, the rush to tweet is a curse as well as a blessing. Rumors, innuendo, flameouts all abound on Twitter. Our approach is to flag interesting content for you, often before you receive it in your daily newsletter. Thus, the quickest access! We have 19,600 followers, putting us just behind Lady Gaga, so why not follow us and help us quickly get to an even 20,000? Hope you had a great weekend.

Mark Fogarty is editorial director of the SourceMedia Mortgage Group and has been commenting on the mortgage market since 1984. Brian Collins is the group’s senior editor and D.C. bureau chief. He has worked the mortgage beat since 1988.

Comments (3)
It's time for the players in the mortgage brokerage business to take some initiative! I'm only doing business with wholesalers where I can maximize my income. Like sheep, brokers have gravitated towards the large wholesalers and have had to put up with their mandates. Stop cursing the darkness - flip the switch. Let the wholesalers suffer in volume and watch how quick they are to be broker-friendly. If a wholesaler has better rates than another, and you can't sell a more "friendly" wholesaler to match rates - the only ones to be affected will be L/O's who are not salespeople but just order-takers.
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