Are you a non-depository lender or community bank? Are you a lender who makes a majority of your income through residential mortgages? Then you should be talking to‑correction, screaming at‑your congressional representative. NOW!
In its last set of proposals, the CFPB indicates an intention to allow lenders who make less than half their revenue through mortgages to pay profit sharing/bonuses to their loan officers based upon the profits earned from their mortgages. Put another way, if Loan Officer Joe works for a non-depository mortgage bank that makes most of its money through loans, this “non-bank” cannot in any manner consider the profitability of the loan officer’s loans in connection with his compensation. On the other hand, based upon this proposal, if Joe works for ABC bank–who derives 51% of revenue from credit cards, Joe will be able to receive an annual bonus based upon the bank’s overall profitability including consideration of every dollar of profit generated through his loans.
To say this is an uneven playing field is putting it mildly. The CFPB’s proposal would provide larger and more diverse institutions with a powerful incentive to attract and retain loan officers that smaller community lenders could never match. It will give the largest institutions – who already have advantages in licensing – an advantage in compensation and more importantly perception. Diverse financial institutions would also be permitted to pay bonuses off “business groups” whose revenue was at least 51% non-mortgage related, allowing such institutions to formulate sections of the company to maximize the profit sharing mortgage loan component. One could even envision business groups comprised of the most profitable and highest volume loan officers to truly gain a competitive advantage.
Beyond these large and complex institutions, one can only begin to think of the creative interpretations that could be implemented by lenders less focused upon compliance. I can already see the sign “Joe’s Mortgage and Lawn Cutting Service.”
The CFPB should be focusing its efforts on enabling companies to apply consistent rules so that community lenders who truly want to remain compliant can do so without fear that the largest institutions will have an advantage and the that compliance averse entities will be given additional means and incentives to play in the shadows. If there has to be a rule on LO compensation, it should be consistent and uniform. The only way to make that happen is for community lenders—who are most often guilty of remaining silent and allowing “someone else” to respond—to find their voice…fast.
