Despite the government's promise to crack down on violators of the new LO comp rules, nearly one year after they went into effect regulators have failed to deliver on their stern warnings and promises. Not surprisingly, some companies have elected to largely ignore the law, instituting compensation policies that are an obvious and blatant effort at circumventing the new compensation rules.
Of course, these noncompliant companies obtain a significant advantage at recruiting loan officers and branch managers, tempting others in the industry to follow suit and essentially ignore the laws. There are, however, better options.
First, loan officers and branch managers (who generally don't realize it) must understand that duties of care already exist (that will be expanded) which, if violated through improper compensation, may have serious personal consequences. Moreover, creative policies can ultimately over time provide the same or better compensation to loan officers and branch managers without the compliance risks. In addition, the compliance risks increase, as others in the industry are more likely to report violators to the appropriate authorities. As such, violators' "gains" will likely be short lived, as will the careers of their employees.
Notwithstanding, there are many who will likely read this article and remain unconvinced that it pays to follow the law. To that, I would only point to those companies in 2006 making significant profits selling negative amortization, interest only, no doc, and 125% LTV loans. By 2008, how many were in business and how many of their owners later faced bankruptcy? The bottom line is that those persons engaged in violative practices are sacrificing long-term benefits for short-term gains. Remaining compliant is a necessity for companies who want to achieve sustainable longevity.
