Perhaps, loan brokers should just stop battling the Federal Reserve over its loan officer compensation rule, adapt, and move on to the next stage of their career. Or as loan broker/banker Chris Sorensen put it: "This isn't as bad as people think. Once the whining and crying is over, brokers will pick their comp rate and start competing with the big boys."
Of course, that might be easier said than done. Late last week two broker trade groups—the National Association of Mortgage Brokers and the National Association of Independent Housing Professionals—were preparing yet another appeal of their case against the Federal Reserve.
But the way things stand now the Fed's loan officer compensation rule is the law of the land, governing how both brokers and depository LOs (the Fed refers to the latter in its court filings as “creditors”) can earn a living.
For brokers, the rule's chief tenants are these: LOs cannot be paid by both a wholesaler and a consumer on the same transaction, compensation cannot be based on loan terms such as the rate, brokers cannot give up compensation and pass that savings onto the borrower as an incentive to close with them, and LOs working for a brokerage must be salaried employees and cannot earn a commission based on volume.
Roy DeLoach, an outside lobbyist for NAMB (and a past president of the group), said what bothers him the most about the rule is that it puts brokerage firms at a competitive disadvantage to bankers. "All the money on a deal goes to the brokerage company. You have to pay a salary. There's no bonus."
What DeLoach and other trade group officials fear is that certain high-performance brokers might bolt brokerage firms for the safe confines of a well-heeled depository or nonbank that can offer a superior salary and benefits. (On average, most brokerage firms have three to four LOs.)
Howard Lax, a Michigan mortgage attorney with Lipson Neilson, believes the rule will not necessarily be the death knell of the brokerage industry. He believes that "lone wolf" brokerage shops (sole proprietors) will be fine with the rule because the LO closing the loans also owns the firm. "I think the lone wolves will have the least amount of problems with it," he said.
One thing the Fed LO comp rule doesn't do is put major restrictions on commissions a brokerage can earn. Lisa Schreiber, executive vice president in charge of wholesale lending at TMS Funding, Milford, Conn., notes that firms can still choose their own comp plans.
TMS, she added, pays commission ranging from 75 to 300 basis points of the loan amount. (These are “lender paid” comp plans as opposed to a “borrower paid” plan.)
Schreiber, a wholesale executive with multiple years of experience, doesn't think the LO comp rule will kill the brokerage industry either. "I think brokers will find a way to compete," she said.
Another key complaint of NAMB is the inflexibility that the rule creates. In other words, brokers cannot buy down the rate anymore by making less money on a deal. As one observer put it: "Brokers are now at par with banks."
NAMB president Mike D'Alonzo said if his commission is 2% (by contract) and the rate on a loan is 5%, he cannot bring that rate down for the consumer. "The consumer is the big loser," he said.
Meanwhile, NAMB and NAIHP are not done fighting the Fed. They plan another court appeal of the rule. "We won't top fighting," said NAIHP president Marc Savitt. "We'll take this to the CFPB (Consumer Financial Protection Bureau). Maybe we can change it there."
