The New LO Comp Rule, Practical Implications

At this point, there seems to be plenty of confusion about the new loan officer compensation rule but with just about everyone in the industry subscribing to the notion that loan brokers are at a competitive disadvantage to depositories and well capitalized nonbanks. This email I received over the weekend provides a look into the rule from a party not heard from much, the correspondent mortgage banker: "The Fed rule is easier for big bank LOs to deal with in that they've always been used to just quoting the bank's stated price without worrying or knowing about how much the bank was making behind the scenes. Furthermore, a fleet-of-foot bank (U.S. Bancorp comes to mind) can quickly 'tweak' their pricing on a daily basis in response to the varying competitiveness of the market. Mortgage bankers and brokers can only tweak their gross profit model (and commissions) 'periodically.' The big change is that correspondent and broker LOs no longer have the individual flexibility they're used to. Yesterday my co-worker realized he'd misquoted a rate to a borrower to the tune of about $3,000 in closing costs. If it were still March, my co-worker would have 'chowed' his mistake, as he's done for the better part of 20 years. Under the new rules, he can't chow such a big mistake, so he had to call the borrower up and weasel out of what he'd promised him the night before. The Fed rule eliminates the ability of the LO to eat his mistakes."