It's not easy being a mortgage loan officer these days. Oh sure, loan volumes are increasing nicely because of the refinancing boom, but there's plenty to worry about, chief among them warehouse "dings" and future caps on compensation.
It's no secret in the industry that warehouse credit has improved greatly over the past half year, but that doesn't necessarily mean management is going easy on its loan officers.
Profit margins continue to be fat, but some nonbank lenders are beginning to penalize LOs if the loans they're working on take too long to close. As one consultant told me, "If a loan takes a long time to close that means the warehouse line will have to stay open that much longer. It could result in 'negative carry.' So what do you do? You 'ding' the LO to teach them not to take so long."
No one has suggested that penalizing LOs (which reduces their overall commission) is a serious problem yet, but it's not a new phenomenon either. A LO who works in the Columbus, Ohio, area, and who requested his name not be used, said a lender he worked for was doing it back 2008. "A lot of times it didn't have to do with the LO," he said, "but it was a way for the company to say, 'We're not going to absorb this extra charge.'"
The broker added that oftentimes it wasn't the loan officer's fault the loan was taking so long to close—it was the title company's fault, he argued. (Today, thanks to the foreclosure crisis, there is an increased emphasis on having clear title, especially on REO sales.)
But warehouse charges may be the least of worries facing loan officers who work for either an actual funder or a loan brokerage operation.
Currently, the big unknown facing the industry is coming rules that put restrictions on how loan officers can be compensated. "The mortgage industry is in a state of the unknown right now," said Chuck Klein, a managing partner in Mortgage Banking Solutions, Woodway, Texas.
"Loan officers are on pins and needles," he said.
To boot, the issue of compensation isn't always so easy to understand, even for professionals that have been following it closely for a year.
"This isn't about yield-spread premiums," said Mike Anderson, who runs Essential Mortgage, a New Orleans-based brokerage.
"The coming rule says you can't be paid based on the rates and terms of the loan," he said.
Anderson notes that YSP payments are still allowed, but according to his reading of the rule, once a yield spread premium rate is established with one table funder, it cannot be altered.
"I will be restricted on what I can earn," he said.
When asked how much of a YSP he needs to survive, he replied, "One and three-fourth to two points."
And where do these news rules come from? Answer: The Dodd-Frank bill, which mandated changes to the Truth in Lending Act regarding loan officer compensation.
Anderson, a volunteer who also works for the National Association of Mortgage Brokers, recently helped launch an Internet petition to stop the rule entirely, or at least delay it. The changes are slated to become operative in April.
"Our goal is to stop it altogether, push it back, or exclude 'qualified mortgages' from it," said Anderson.
Then again, there are different interpretations of what the rules say and what may happen.
Bill Kidwell, president of the Colorado Association of Mortgage Brokers, noted that there are many unknowns as yet.
In a recent position paper he notes that direct consumer payments can be based on the loan's terms and conditions, adding that "individual loan originators never receive payments directly from consumers, only companies do."
Kidwell, though, isn't a party to the NAMB petition.
"I'm still looking at it," he said the Colorado broker group's president said last week.
Meanwhile, several industry officials say they're waiting to see how the Federal Reserve interprets the Dodd-Frank compensation mandate, while others contend that the matter eventually will come under the purview of the nascent Consumer Financial Protection Bureau.
And to boot, there is plenty of talk about filing a lawsuit against the Fed — but none of the parties doing the saber rattling are willing to say so on the record.
