MELVILLE, NY—While there are many “unknowns” regarding the future of broker compensation, speakers at the New York Association of Mortgage Brokers annual convention here said they believe the wholesale lending business is not going away.
“Wholesale is here to stay, and it will thrive for many years to come,” said Richard Bloom, an area sales manager for Wells Fargo Home Mortgage during the regulatory update session.
“Borrowers are more sophisticated today. The average compensation today, we feel, is going to be very similar to what you are going to end up earning April 1. We are committed to wholesale. We are investing millions of dollars into technology. That wouldn’t be something we would do if we thought this was the death of wholesale.”
The federal rule on loan originator compensation will level the playing field to a certain amount, he said. “Safe harbor is an important term within the rule. For a fixed-rate loan, adjustable-rate loan or a reverse mortgage, it is met if the loan options are presented to the consumer. This includes the lowest interest rate for which the consumer qualifies and the lowest points in origination fees,” Bloom explained.
This consumer friendly legislation is causing a lot of “heartache” for a lot of brokers and lenders on both sides of the fence, he said.
“We have to obey the laws to stay in business. We are committed to wholesale. We feel very strongly that we can compensate our clients in a way to keep them in business. We have to stay within the letter of the law and offer you a product where you can make reasonably good compensation very similar to what you are bringing in today.”
Ari Karen, a partner with Offit Kurman Attorneys at Law, said the incentive compensation system is now based on underwriting criteria and reducing risk for the borrower. Federal regulators want the loan officer to think about the risk to the institution.
“Joe comes in and he’s buying his seventh house but this one is owner-occupied. We’ve been in situations when someone comes in and says they are going to live in the house for at least two months. You can push that through all day. That is exactly what we don’t want the loan officer doing anymore,” he told the conference.
“It sets up the institution for failure. That loan goes bad. The day of 'let me throw it against the underwriter and see if I can get it through,’ that’s over...what they want is the underwriter on the same side as the loan officer.”
Karen stressed that while the pay structure may be different, “If you do your job selling good loans that are appropriate, you should make the same amount of money or close to it, not based on each loan but aggregately at the end of the year. It’s going to be a flatter line, but at the end of the year you should end up at the same point.”
He encouraged brokers to implement or initiate a written flat free hybrid compensation system for the first quarter of 2011 on an experimental basis.
“Show it to your loan officers. Pay them the same way you are doing today, but show them along the way, this is how much they would get with this in place.”
As a result of all the regulatory changes, now, more than ever, Susan Kryer, president of the NYAMB, said that the role of a trade association is essential to the future success of mortgage brokers. She said the NYAMB plans to proactively lobby in Albany at the state level.
Kryer said her biggest concern with the federal rule on loan originator compensation is that “it lumps the mortgage broker entity in with the mortgage loan originator. “When it does that, there are expenses that they are not recognizing that a mortgage broker business has,” she told Origination News in an interview at the conference.
This rule could potentially limit income for brokers as well as profitability to the point where “they might not be able to survive,” she said.
Kryer, who is the originations manager with Mortgage Innovations Group LLC, urged top banking officials present at the annual convention to lobby on the association’s behalf to separate the broker entity from the originator.
“As broker owners, we have fixed and variable expenses—electric, rent for office space, and NYAMB department assessments. We have these expenses that mortgage loan originators do not have. This issue cannot be a done deal at this point.”
As a result of B of A’s exit from wholesale, the NYAMB is concerned that the pricing its members provide to consumers will be higher, noncompetitive and not cost effective.
John Commons, a past president and director with the NYAMB, and the production manager at Lynx Mortgage Bank, said B of A’s exit is an “unfortunate sign of the contraction” in the direct mortgage broker industry, which is “movement in the wrong direction.
“If you did business with them or not, it’s just another shock,” he said. “How many more are left? Who else is coming in? I would love to see somebody take their place, but it’s not the movement.”
Board members agreed that “some of the smaller guys” could step into the wholesale channel, but the financial regulatory reform bill will “make it onerous on them.”
Bonnie Nachamie, NYAMB secretary, commented, “Now Bank of America will buy loans from large lenders and large lenders will buy loans originated by mortgage brokers. The middleman is back in.
“Now, I have a new broker level, so will the broker be able to provide competitive loan pricing to the consumer? I think it’s a wait and see on that.
“We don’t know what kind of wholesale pricing Bank of America will be willing to give to correspondents who are willing to undertake the responsibility for broker-originated loans.”
