If you listen to the brokerage community, especially their trade group officials, the new loan officer compensation rules spell disaster for third-party mortgage salesmen. But for retail LOs working at firms that actually fund mortgages (as opposed to brokering them) the outlook is unclear. In fact, when it comes to LO dollars earned, it may even be a wash.
Keep in mind that the ink is barely dry on the regulation, which dictates to the entire industry just how retail LOs and outside brokers can be compensated.
Rest assured, there is much confusion over the reg, which officially went into effect April 6. In fact, some industry officials contend that initially the states have no plans to enforce LO compensation until the smoke clears. (That’s a column for another day.)
Meanwhile, for months mortgage banking firms have been busy explaining to their LOs the new compensation structures, trying to alleviate their biggest fear: that when all is said and done they may wind up making less money.
“We’ve been spending a lot of time talking to our sales people about this,” said Leif Thomson, founder of Mortgage Master, Walpole, Mass., one of the largest retail mortgage bankers in New England. “We have good, talented people and we want to keep them.”
Prior to the Federal Reserve’s LO comp rule going into effect, Mortgage Master gave its LOs roughly half of what it earned on a loan. But with the new reg in effect, it now pays a percentage of the loan amount in basis points. “Right now we’re paying 75 to 80 basis points,” said Thomson, who founded the company 24 years ago.
Of course, the obvious question boils down to this: basis points vs. the old formula—in the end does the LO make more, less, or the same? “Our hope is that our LOs will not be losing money,” said Paul Anastos, Mortgage Masters chief operating officer.
In short, all across the nation LOs and their employers are busy doing the math, trying to figure out how many loans they have to produce just to stay even. And it’s obvious to anyone with a basic understanding of numbers that 80 basis points on a $400,000 mortgage yields more pay than 80 bps on a $300,000 loan.
In recent interviews with LOs and mortgage executives, it appears that on average, lenders are paying their retail salesmen 70 to 140 basis points per loan. (Glen Corso, managing director of The Community Mortgage Banking project, a trade group, puts the figure at 60 to 125 basis points.)
Overall, it’s likely that the smaller the dollar amount of the mortgage, the more money the lender will pay the retail LO. Likewise, the larger the loan, the less bps the salesman will earn.
For all parties involved (LO and employer) there’s a risk involved when determining how much should be paid. Chris George, CEO of CMG Mortgage of San Ramon, Calif., points out that “if the LO is paid less” that increases the amount of the servicing-released premium that the company earns when it sells the loan into the secondary market.
“Let’s be clear,” George said, “LO comp is a huge deal for the industry. Every one company wants a strong SRP, but no LO in the industry is going to work for free.”
