Following up with Tim’s post on getting rid of YSP, I thought I’d share my idea on just getting rid of commissions being paid to a Mortgage Originator all together. Why stop at the misunderstood yield spread premium when the current system is flawed. Why should be we be compensated based off of what size the loan amount is when we should be paid based on how much work and time is invested with the client.
Mortgage Professionals should be compensated based on how many hours they spend with each client.
- This would eliminate steering to other mortgage products which might be more lucrative.
- Assure that consumers would receive plenty of consultation from their Mortgage Professional.
- Mortgage Professionals would be compensated for helping consumers with their credit, debt and asset management scenarios regardless of whether or not they ever finance a home using their services.
- If a consumer really needed to reach a LO after hours or weekends; they could pay overtime to the Mortgage Professional.
- Mortgage Professionals would change their directive from how many millions in loans they are originating to how much time is spent with each consumer.
- Consumers could freely select one Mortgage Professional to help with getting ready to purchase or mortgage a home and another to finance the loan with no strings attached or hard feelings from the LO. Perhaps some Mortgage Professionals would become specialist in such areas.
- Consumers could select various Mortgage Professionals based on their experience which would be reflected in their hourly rate of pay. This falls in line with suggestions that Jillayne has made on a having a tiered system of Mortgage Professionals.
- No more YSP. (Even though this is silly because mortgage bankers receive compensation on the back end and are not required to disclose it).
- True Mortgage Planners and Consultants instead of “Originators”.
A big argument I would have against this is that I would not want someone to not call me because they’re afraid of the bill that would follow after I provide hours of advice.
Your thoughts?
You can choose to be compensated that way, Rhonda, right now. Jeff Corbett advocates a flat origination fee regardless of the loan size. Some originators are offering “loan review” services for a fee.
It could completely redefine the business if we eliminated YSP and had brokers charge a fee for service- it would force banks to be more competitive in their pricing but would cost the consumer more upfront.
Brian, Flat fee compensation would still encourage quanity over quality. In fact, you may really need to close more transactions in order to create a living an established Mortgage Professional would warrant.
Plus, it would not create compensation for consultations without a bona fide closed mortgage transaction.
Rhonda:
I would love to be paid by the hour. However, changing the comp structure still doesn’t address the problem that consumers still want the absolute lowest rates.
I can see the whining now from consumers. I paid you $200/hr and I didn’t get the lowest rate! Then Barney Frank will be holding hearings asking why LOs are charging $200/hr.
The absolute simplest solution to this problem is non disclosure of premiums and LO compensation. I still don’t understand why it is so hard for folks to understand wholesale rate plus YSP equals retail rate? Are our schools so lacking that the vast majority of the public and most of our legislators have no concept of basic business fundamentals?
If a consumer wants to negotiate my YSP/compensation upfront, I want legally enforceable contracts. Right now, a consumer can walk if they don’t like the rate and fees I am offering, regardless of how much work I do on their behalf and I may not be compensated. If consumers want to start being nosy about my income, then I want them fully committed to me contractually. As I mentioned before, negotiating YSP does not guarantee the lowest rates. I don’t want a consumer agreeing to pay me X for delivering a loan and then they decide they don’t want to pay up because they don’t like the rate even though I upheld my end of the agreement by getting them a mortgage and setting my compensation accordingly.
The way brokers and LOs are compensated is spelled out in state and federal law.
In order to change state and federal law, many things would have to happen first.
First, brokers must stop worrying about same/same treatment of banks.
It’s like trying to change another person. Many people have been driven to madness trying to change other people. Instead, brokers and LOs should focus on their own industry group.
Second, brokers and LOs need to step up to the plate and begin self-regulating the ethical conduct of their members.
Only when an industry is formally self-regulating will government get off your backs and agree to listen to ideas of overhauling compensation.
Personally, I love the idea of a total transformation of the way brokers and LOs are paid.
I believe LOs ought to be able to earn a fee for their time.
(Right now an LO earns a fee only when a loan closes (with some very minor exceptions state-to-state.)
I believe LOs ought to be able to freely refer a client to another LO who may be able to better serve that client, in exchange for a fee.
I believe LOs ought to be able to earn more on the files that took a LONG time to get through the system.
Realize though, that the more LOs enter the realm of professional status, the higher their liability. There are some tradeoffs to swallow.
Rhonda, Brian, what are some of the services you provide for which you’d like to charge a fee?
In the last year I originated, I charged a flat fee. Made things so much easier.
Hi Russ,
Non disclosure of compensation isn’t going to fly.
If the Mortgage Reform Act passes, LOs are not going to be required to obtain the “lowest rate” for the borrower.
The average consumer doesn’t understand wholesale/ retail mortgage origination pricing nor will they ever. They know they have to pay you something, they just want to know what it is, up front.
Also, we teach people how to treat us. Consumers walk away from LOs because they’ve been taught that they can do that. Right now LOs hold a zero sum value to the consumer because there’s another LO down the street giving his advice away for free.
Nobody ought take any of this personally, I’m just looking at the whole industry as a group. Of course individual LOs out there are awesome, but collectively, not so.
Jillayne
“The average consumer doesn’t understand wholesale/ retail mortgage origination pricing nor will they ever. They know they have to pay you something, they just want to know what it is, up front.”
How do you figure the average consumer doesn’t understand wholesale and retail? They seem to understand this concept at any other business in America, but some how when it comes to mortgages it becomes brain surgery?
Consumers know how to pick the low cost loan. They know 6.0% w/ $1000 in fees is better than 6.5% with $1000 in fees. Adding/disclosing YSP into the mix does nothing but confuse them. Disclosing YSP provides no value to the consumer whatsoever.
I agree that nondisclosure will never happen because 1) the commie consumer groups like Center for Responsible Lending scream louder than mortgage brokerages and 2) banks won’t allow non-disclosure so they are going to lining the pockets of politicians to prevent it from happening.
Russ, a contract is an interesting idea. Expectations of both parties would be spelled out and as well as options or recourse when when party does not live up their end of the deal.
The j.q. public does not understand wholesale plus ysp = retail because YSP has been sensationalized and demonized.
Regardless of the appropriateness of disclosing YSPs by law, clients may just not be comfortable. I try to remember that I look at HUD-1 settlement statements every day and understand the numbers at a glance. To buyers the statement is a confusing bunch of numbers resulting in their having to pay more at closing than they expected. They are often not made aware of property tax impounds, insurance impounds, or prepaid interest and are shocked at closing. They jump on any unknown fees, even those listed in the POC column such as YSPs, and assume they are being taken. All fees should be dislosed and explained in advance by the mortgage broker, otherwise the closing agent is left having to inform the buyer regarding such fees as YSPs which then casts the mortgage broker in a negative light.
http://www.southptc.com/
It’s been my experience with mortgage brokers, that their customers have no clue they’ve been making money on the ‘back end’. What the hell is a back end? 🙂
Furthermore, we all have endless stories about the guy charging 4 points for a loan with a rate 1/2% higher than market, while getting 2 points on the back end. The explanation given to the borrower is their FICO score was only 698. 🙂 This isn’t an agent throwing stones, as our side of the industry has it’s own embarrassments.
That said, going to a flat fee structure is an option, but for those who’re interested in plowing as many fields as possible. I’d term that approach as Wal-Mart.
Speaking only for myself, as a RE investment broker, my product isn’t actually real estate. It’s the creation of wealth, resulting in a higher quality retirement. When clients occasionally try to negotiate my pay, I offer to change the fee structure to include giving me a share of their newly acquired wealth. This suggestion is usually followed by something like, “Hey, how ’bout those Padres?!” 🙂
What separates one loan broker from another? Different factors for different borrowers.
I know this isn’t PC, but my clients know their lender will be the guy who calls them. They understand it’s in their best interests to work with a lender who understands investment properties.
Other borrowers perceive their loan needs as run of the mill, and just want a rate near the bottom, for a price near the bottom.
Some folks change their oil in their driveway, others can’t even wait while it’s being done.
As for YSP, and the public’s understanding of it?
For those who think the public is demonstrating it’s woefully low IQ when it comes to YSP, and the difference between wholesale and retail rates?
I couldn’t change my own oil ’till I was 26. Does that make me an idiot?
Arrogance usually isn’t a productive marketing tool. 🙂
Nice tongue-and-cheek article, Rhonda.
Staying competitive typicallys gets the business. For instance, I don’t think the average customer really cares that someone’s making YSP in rebate just as long as the interest rate is lower than the local bank’s interest rate down the street, assuming the closing costs are the same.
I don’t think regulators care how much the LO makes, just as long as they’re upfront about it. And, as long as the customer shops around, if you’re competitive, you should typically get the loan…….
….right?
David, you don’t think I’m serious? 😉
Perhaps I’m not the best LO to write about YSP since I’m technically rarely paid YSP working for a Correspondent Lender. I do have the ability to be paid on the “back end”; I’m treated as a banker. We do not disclose that compensation that the same LO working for a Mortgage Broker does.
Jeff, I view my business as more than being just a “mortgage dispenser”. I agree with what you’re saying. You’re right, some clients have a very set idea on what they feel is the best product for them and are not open to new ideas that would most likely be more beneficial.
“Furthermore, we all have endless stories about the guy charging 4 points for a loan with a rate 1/2% higher than market, while getting 2 points on the back end. The explanation given to the borrower is their FICO score was only 698.”
My problem is that the ONLY way this happens is when a consumer doesn’t even try to shop for their mortgage. ONE additional phone call to a ANY broker or retail bank would blow those type of deals away. The mortgage market is very efficient and I highly doubt if a person calls just two lenders that both are going to be the type to want to make “2 on the front and 2 in the back” and by the way, you only have a 698 FICO score. It is impossible to gouge consumers when they take responsibility and shop.
The same people who cry about some boiler room piker at LieTech.com taking them to the cleaners for four points because they didn’t bother shopping or educating themselves about their largest financial transaction can tell you who has cheaper Plasma TVs. If LCD is better than Plasma. If Foot Locker is cheaper than Foot Action. They will get out a Kelly Blue Book and drive 50 miles to save $100 on their car purchase, but ask them to learn about their mortgage and home financing options and we all of sudden are blaming the victim.
I don’t think anyone is saying the public is stupid. Well actually, I have said it before.
http://smartmortgageadvice.wordpress.com/2007/09/13/are-consumers-stupid/
The point is that the public doesn’t care about YSP because it is IRRELEVANT to their deal which is the final interest rate and fees. YSP is like debating over what Wal-Mart’s profit is on a pair of socks. No one cares. Wal-Mart socks are still cheaper than Target’s which at the end of the day is all that matters.
The FTC has shown that YSP disclosure does nothing but confuse consumers into taking more expensive loans from banks that do not disclose their SRP. When YSP is not shown, consumer overwhelmingly pick the cheaper loan. Disclose YSP, they get confused because they don’t know what it is and then pick the more expensive loan. This is the whole reason YSP is even disclosed. Banks lobbied to make brokers disclose because banks cannot compete head-to-head with a good broker.
http://smartmortgageadvice.wordpress.com/2007/11/09/what-gas-stations-can-teach-us-about-mortgage-brokerages-part-1/
I highly recommend reading the links to Russ’s blog above. Russ, your posts are brilliant. 🙂
I work in real estate development, mostly owners rep stuff, but some brokerage as well. Often times we wrap consulting and brokerage functions into one hourly-based fee. Other times we’re on straight commission. Hourly is good for us and clients because it keeps our interests in alignment. In a similar way, broker could be “residential mortgage consultants” and be paid by the hour for your ability to connect clients to the best loan. I’m not exceptially familiar with the leagl ramiifcations in the residential area. On the commercial side, I try to avoid all compensation-based brokers whenever possible – both in mortgage and leasing. Generally just grossly overpaid for services provided, but I understand why given the risks of not being paid for work provided. A move to hourly based pay would make the work-cost equation more transparent.
I hear banks want to do away with all LO, brokers, in-house or otherwise, and just pay somebody $10.50 an hour to take applications, show spread sheets and process paperwork, and if less people walk in the bank, then fire some staff, if more people walk in, hire some more $10.50 an hour “home mortgage specialist clerk staff” or they could just call labor ready, or some other temp agency, sorry to say; I think that’s what the banks are pushing for, but if you where a former L.O. you may Negotiate a full $11.00 an hour but on the other hand they may just label anybody as “Over qualified” if they find out you ever Originated a loan with the “old system”
is see them behind a lot of this stuff, sad …I know 🙁
not that this new way of doing business will be better for the consumer or the bank, may have to wait and see.
old guy, it wouldn’t surprise me a bit to see banks make moves like that. All ready, many of the banks with retail outlets are restricting their relationships with brokers and/or terminating wholesale operations. For example, WaMu terminated portions of their wholesale departments while recruiting for their retail branches. BOA has ended their wholesale relationships.
Many banks are too big and do not give consumers (or their employees) the credit they deserve for having a good head on their shoulders. Countrywide gives their employees green rubber bracelets IF they sign a Loyalty Oath and then cans ’em with no notice. How dumb do they think the employees are (I guess if they drink the Countywide-Koolaid…). I’m off topic…
I predict there will be drastically fewer LOs all all types (banker, broker, lender)–which is good for those of us who will stick it through this market. If the trend continues to be more strict on brokers than bankers, mortgage bankers will come out of this as the $10 an hour mortgage originator and brokers will come out on top as the expert held to a higher standard (over bankers).
If 3915, (or any legislation such as what we have in the state of WA), targets specifically brokers and continues to allow bankers slip through the cracks, I’ll continue to promote my license as a dignified badge of honor, ethics and education.
It may cost more to work with a mortgage broker in the future (over a banker); however perhaps there will be value in their expertise and the overall experience. I think back to my divorce when I used a less expensive attorney and then one year later, had to hire one for twice as much an hour to fix what the first one did (and did not) do.
Some people may not need (or see the need) for an expert… others will value a Mortgage Professionals expertise.
flowtown, being paid hourly would be more transparent.
Should a LO make more on a larger loan amount than a smaller one if the smaller loan amount is more work?
Origination fees would actually go down if a LO was paid hourly to those clients who close transactions with the LO because the LO would also be compensated by those who did not consumate a transaction (with or without the LO).
An attorney is paid whether or not they go to court and/or win. At least they have the option to be paid. There will always be a bit of free advice.
Also, if a consumer is paying for consultation vs. origination, would that impart liability/responsibility on the LO’s consultation?
I’m a consumer, and I don’t think I’m an idiot.
I did a fair amount of research when shopping for my first mortgage, but somehow remained comfortably oblivious to YSP. The broker who supplied me with a GFE never mentioned it, and I ended up going with a bank, so it isn’t on my loan docs.
I think that it’s probably right that YSP doesn’t matter to the borrower.
However I am certainly going to ask about it when getting my next loan. If someone is giving me the best rate and STILL has a large YSP, it’s a huge red flag. This happened to a guy I know. I thought it was curious at the time, but the best rate is the best rate.
It turns out it was because the broker snuck in a 3-year prepay penalty which my buddy wasn’t sharp enough to catch in the flurry of signing day.
He had to sell his house prematurely, and it cost him 15 grand or so.
So YSP disclosure does matter.
The lesson I took from it is to demand the paperwork in advance and hire a lawyer.
So if brokers are all checking the rates on the same 20 lenders, how is it possible for someone to offer the same rates and fees yet have a much bigger YSP?
Wouldn’t the large YSP be a dead-give-away there is something nefarious and nasty in the fine print?
biliruben, that stinks!! The way to tell if there’s a prepayment penalty (without the LO verbally telling you) is on a small box on the back of the Federal Truth in Lending, which is suppose to accompany the Good Faith Estimate. This (sneaking in a prepay) is much more abusive than any YSP. If the LO is a snake, the Escrow Officer is left to review the rider disclosing the prepay to the consumer. yuck.
You’re absolutely right that going through a bank, or correspondent lender like me, you won’t know what we’re making on the back end unless we tell you. When I’m asked, I let people know. I have to credit blogging for making me more comfortable about that…in fact, I think you may have been the first person to ask me what I typically make on a transaction!
If someone is giving you the best rate at far cost and has a huge YSP, why would you care? You’re benefiting from a great rate and low costs. The huge YSP may be paying for a portion of your cost in that scenario.
YSP is suppose to be disclosed on the GFE. DFI in WA State is trying to make it appear on the Section 800 of the GFE. The problem is that many LO software will not accomodate that so it shows up in another section as a credit to the LO/mortgage broker.
Another problem with this is that in the preliminary phases, when a consumer would be shopping LOs, if they’re doing so by looking at YSP, it’s a total crap shoot. No one knows how much YSP they’re going to receive until they lock…it’s no different (if not worse) than assuming you’re going to have the rate quoted to you when you’re shopping LOs. There’s a debate between WA DFI and the Mortgage Brokers as to how to preliminary disclose YSP as a range: dollar range vs. percentage range. It’s a mess and although it’s disclosed up front, it really means nothing and therefore, is no way to shop a LO.
I’m not sure exactly how many lenders I work with currently in light of the current market…but it’s probably close to 60 or more. Different lenders offer me different compensation. If the product is a 30 year fixed Fannie Mae/Freddie Mac (so it’s all the same to you); and different lenders are offering various amounts of pay, many LOs will opt for the higher pay. Sometimes other factors can play into it. I’ll sometimes opt for a different lender if I prefer their underwriting or need a quicker turn time. Money is not always the driving force when selecting a lender. And usually, the differences may not be that significant. When it is significant, then I’m able to offer a better rate.
Russ,
I see where you’re coming from with your posts, but I still disagree that YSP is irrelevant.
My fundamental question is whether consumers should expect mortgage brokers to act like brokers or car salesmen? There’s a clear difference in consumer expectations.
When I shop for a car I know that it’s largely a zero-sum game. The more I talk the salesman down on price, the less commission he gets. The same thing works on the financing and trade-in side; I know he’s trying his best to pad his commission at my expense. Even if I shop around with several car lots, I’ve got to fight the same battles over again each time I start with a new dealer. The process is exhausting.
Is this really how mortgage brokers want to structure their compensation? Even if I shop around, if a broker thinks he can get extra premium/YSP from me, it’s in his best interest to try. I think this is one reason minorities and less educated people get stuck with higher costs loans. They’re seen as easier targets.
If I were to hire a car broker, I would expect the car broker to find me the best deal, and work in my best interest. Why should it be any different than with a mortgage broker?
Thanks, Rhonda.
I’ve gone back and am looking at the GFE I got from the broker and first horizon in lynnwood (a simple excel spreadsheet), and I don’t see any disclosure. This was 4 years ago – have things changed since then?
I don’t even see sections.
In fact, I have no idea how she was planning on making money from me at all. From the looks of the GFE, it doesn’t appear she is getting paid, but I guess that’s the “back end” YSP.
biliruben, are you sure the broker is a broker and not a correspondent lender? (Odds are, they’re a broker since there are not many correspondent lenders).
If she (the broker) was a correspondent lender, you would not see her “back end” compensation. First Horizon is a bank (I believe), so they don’t disclose how much they’re getting on the back end either.
Or, she could have been a broker who did not disclose the YSP.
Now I’m wondering myself.
I don’t know. I assumed she was a broker, and the person referring her referred to her as such, and our meeting didn’t occur in a bank, but it could be that she simply a loan rep at the bank.
I don’t have her card anymore, which would probably give me more definitive clues.
I didn’t understand the distinctions back then.
laxtosnoco, do you think that eliminating YSP would eliminate consumers comparing mortgage brokers to car salesman?
I think this is another argument for my getting rid of commission! 🙂 If I start my own mortgage company based on this model, I can borrow Tom Shane’s tag line: Our Staff is Not Paid on Commission…
Rhonda,
You can charge hourly right now, just disclose it at application along with an estimate of fees. There is a GFE addendum that allows you to “line item” your costs, Transfer that estimate (It’ll be range) to the Mortgage broker fee line on the GFE.
You can also redisclose three days prior to docs along with a final bill for escrow.
Let’s say that you want to charge $200/hour. Simply issue a disclosure that shows that most most loans take 15 hours but could be as much as 30 hours- insert $2000-$6,000 on the Mortgage Broker Fee line.
When you are three days from signing (about a day before final approval), gather up your time chits, estimate the final few hours of work, and redisclose the actual amount, have the customer acknowledge receipt, and move forward.
biliruben, some might refer to me as a broker since I work with so many lenders. The big difference being we fund from our own credit line and sell the loan after closing. Since we’re taking the risk by funding the loan and then selling it; we receive better pricing than a broker (and often times, better than the bank!).
Anyhow, this is another issue I have with our industry…let’s say you had a complaint about your former “broker”…who would you go to? Or worse yet, if they work for a bank.
We’re all originating the same product for the same consumers, but all regulated differently by different institutions. I know Jillayne will say brokers shouldn’t whine about banks (I’m actually in the middle of both broker and bank); my “whine” is that it’s very confusing for consumers to know where to turn.
Brian, that is SO tempting! 😉
I wonder how consumers would embrace this idea?
Yes. Confusing!
So if you charged by the hour, you would simply give the whole back-end to the lender, so your APR would almost certainly be the lowest, if someone to shop you, right? Might work pretty well to at least provide the option. It would be great advertising.
when everyone else is advertising 6% and you are advertising 5% with $200/hr. It might come off refreshing and honest.
Er… the whole back-end (which is the same as Y SP, right) to the BORROWER (not lender).
Rhonda, I actually didn’t mean the comparison to car salesmen in a pejorative way. I just see some parallels in how mortgage brokers and car salesmen get paid.
Car Salesmen : Mortgage brokers
Base commission on car purchase: Origination/loan fees
Back end bonus for financing : Premium from longer prepayment penalty period
Extra commission on trade-in : YSP for higher interest rate
Bonus for Rust proofing : Premium for Single credit life insurance
biliruben, I would not be able to advertise a rate…I think it would look more like: $200/hr at par (nothing on the back or front) of the rate. Or, if anything is on the back, it goes to the borrower or to benefit the borrower’s rate.
laxtosnoco, I see the parallels, too…unfortunately. My husband and I bought a car a week or so ago…ugh.
Re: charging an hourly rate…
But then, how would an LO treat a $950 “Processing Fee”, a $595 “doc prep” fee, a “$550 bad hair day fee”, a “$125 Trust account fee”, a “$250 e-mail fee” (a dandy fee I see out there)etc….
Ummm…I don’t have ANY of those fees… 🙂 and I’ve seen escrow companies with e-doc fees…fees can really range from the escrow end, too.
The hourly mortgage originator would be showing the consumer that their fees in section 800 are x, they work for $/per hour and any YSP goes towards paying closing costs for the consumer.
Tim, maybe you should go hourly too with your fees? 😉
First, how about we divorce only getting paid if a transaction closes. Talk about an archaic arrangement and fraught with conflicts. If we did go hourly, we’d make a lot more money. A lot. Staff would too. Maybe even enough to buy a newer car instead of driving around in my 13 yr old minivan with 187K on it and a newly dented roof because of my son’s basketball hoop slamming it after being blown over by the wind storm. But then again, after paying off all those car loans over the past two years with $600-750 payments before insurance and maintenance, I like paying zilch. Went to buy some Hay the other day and the guys that load me up with bales always get a kick out of me pulling up and remarking “how do you like my truck?’ as they load my minivan with hay. I admit it, I’m cheap. I’m working on it.
With the current system of getting paid only when a transaction closes, some would say that would motivate us (and others in the industry) to push for closings.
Hmmm…this makes me think that Brian’s suggestion won’t work of how I could charge hourly. How would I charge my hourly fee to those who do not close a transaction with me? 🙁 Drats! I thought I had it alllll figured out!
All kidding aside, am I very flattered whenever someone asks if they can pay me for my advice. It’s a very nice compliment; but not how our system is set up.
I was speaking from the escrow perspective, primarily.
YOU, Tim, could charge hourly even for those transactions that do not close… good luck with that. 😉
I see a day when what a mortgage broker does is rolled into what a licensed financial planner does.
Brokers could rise up to the level of being a financial planner, or they will end up working for very low wages at a state or federally chartered bank as a glorified application-taker.
The person with the higher….
liability,
duties to the client (yes, Fiduciary duties)
knowlege
experience
expertise
will be the one charging an hourly, higher fee.
The financial planner-type person would earn a fee for his/her time, and then direct the consumer on which loan program to go for, and which company will have better deal, with no kickbacks for a referral.
Someone of this high of a caliber would not need a paltry Respa kickback.
The Certified Mortgage Planner people are trying to do something like this but their certification doesn’t go far enough. Right now almost anyone can get a CMPS.
One of my students last week was mandated to attend the CMPS three day event. She passed all the tests and has the designation, but had never been taught any of the state or federal laws governing mortgage lending. She’s been in the business 4 months, has never closed a deal, and gets to call herself a CMP. She said the classes were 12 hours long and at the end of the day, everyone was forced to sit through several hours worth of commercials trying to sell them on coaching.
That’s too bad.
The CMP folks are on the right track, though. They just need to raise the bar much higher…..but then that would likely mean decreased profits for their company. Dang, there’s always a trade off.
Jillayne,
There’s a difference between CMP and CMPS.
CMP is a new designation (from Steven Marshall) that appears to be easier to obtain than a CMPS. CMPS is a designation that is recognized by the Certified Financial Planners association. As your student mentioned, the classes are long and you do have to pass an exam; which at the class (which is 3 long days of cramming) I attended, 25% did not pass. I opted for the CMPS designation to compliment the courses I began to obtain my CFP.
There’s always coaching at events such as this. This is how they subsidize the cost…your student should get used to it.
Bravo to your student who is new in the industry and cares enough to distinguish and invest in herself by obtaining her CMPS. 🙂 It’s not required of a Loan Originator…you’re right, Jillayne, almost anyone can get their CMPS designation…very very few do.
How about we have to have an MBA/Finance? : )
I’m reading a book right now that delves into accounting (cashflow, acrrual basis, DCF valuations) and it’s a lot of fun! (yes, that means I’m weird). But, seriously, it helps me further understand the GFE and TIL, and even the HUD-1/Settlement Statement.
Also, back to billiruben’s statement prior on comment #19:
So if brokers are all checking the rates on the same 20 lenders, how is it possible for someone to offer the same rates and fees yet have a much bigger YSP?
Not everyone has the same lenders (I have about 3 I keep close to my pocket). Even if they did, most LO’s aren’t smart enough to utilize Fannie/Freddie findings, thus avoiding charges for manual underwrites, additional conditions, and any portfolio headaches that wouldn’t be seen in a saleable loan….make sense? What do you think Rhonda?
Basically, I’m arguing that if you work with a really genius LO, and they receive more compensation, but offer you a lower rate & costs….well, why not?
David 510-LO-34429, I (510-LO-32047) agree completely.
I’m going back and forth from this post, Tim’s and Brian Brady’s which are all related to this subject.
Consumers are totally impowered to select what type of LO they want to work with. One’s who are capable of providing stratigic advice, who care enough to stay current with the latest u/w guideline changes and will provide a fairly priced rate.
Or they can go with who’s going to quote the lowest rate and they may get it…and cross their fingers that the loan closes. To be fair, they may do a good job too.
The more we, as Mortgage Professionals, continue bring up the bar in our industry by continuing education, obtaining degrees and/or desiginations and just plain performing, the better off we will be as a whole.
Those of us who are going through with the licensing, passing our competency exams and continuing our education will do fine if we can get by on our smaller pie that the next year may bring.
Jillayne,
Here’s an example of where I would like to be paid… a consumer who was referred to me a few years ago just resurfaced. She’s getting ready to buy in February…perhaps in another state but maybe Washington. She wanted to know when she should start getting preapproved.
My answer: now.
I told her that if she buys in another state, I’ll refer her to another LO, since I’m limited to WA state. But it’s important that we begin reviewing credit, assets and debts now so that her family can be in the best position possible when February rolls around.
This type of client was not referred by a real estate agent. I could very well lose her once she hooks up with a RE agent if she buys locally or I can lose her because they buy out of state. Odds are, I won’t be financially paid. I do feel good helping people out. I also feel good when I’m paid for it.
An LO charging by the hour? Anybody who’s seen a lawyer pad his billable hours log knows that one isn’t going to fly. There are too many factors out of the LO’s control that could legitimately pile on hours that the borrower shouldn’t have to pay for. Maybe you could talk underwriting into paying your billable hours when they get an arbitrary wild hair up their wazzu and come up with last minute conditions. As for losing a client after they hook up with a real estate agent, it’s like this; almost every time a buyer decides to ignore the long list of lenders I know will do good work for them and will cooperate with me, the deal either fails or the borrower gets screwed royally. Unless I know you to be a flaming incompetent I won’t summarily lead my client to one of my preferred lenders but I will make sure to find an opportunity to have a few minutes of face time with you to make sure you understand that your payday as well as mine hinges on how helpful you are to the guy coordinating the transaction, namely me. Maybe if more of you “got” that RE agents are your customers too you wouldn’t lose clients. And BTW, I explain to my clients what yield spread premium is and advise them to make sure you disclose it on the GFE.
JD, most of my clients are RE agents…they stuck with me after being their title rep for 14 years. I know we don’t know each other AND on most of my transactions, I don’t have YSP. I’m arguing for my “broker brother” and for the future of the mortgage industry.
My example above is from a client today. I have came across some agents, probably not like yourself, where they are determined to have any buyer work with THEIR mortgage person after I’ve done all the elbow grease. Not even giving me (or any LO) a chance to prove or disprove competence.
RE: comment #40
Amen
RE: comment #40
Amen- I can’t comment; Jillayne frames my thoughts verbatim
I actually think the market is headed in the other direction, away from people with expertise/credentials.
Technology, such as automated underwriting systems has taken loan officer and underwriter judgments out of the process. Once you get a complete1008 filled out and uploaded for an AUS decision with contingencies, there’s not much need for a human being. I don’t see any reason why a consumer with good credit looking for a conforming 30 year fixed loan can’t submit a loan himself without much help from a broker or loan officer.
I also don’t understand why not one mortgage lender has built a decent interface for customers to really shop and submit an application online.
Forget the ‘glorified application taker’ that Jillayne mentioned. The only person mortgage lenders might need in the future is a gloried loan processor.
Rhonda, I’m sure I’m not talking about *you* specifically and I’m really glad to hear you don’t play the YSP game but my experience with lenders that I don’t have a prior working relationship with hasn’t been good too many times. Your agents obviously have prior experience with you. The ONLY reason I pull my client to a lender I trust is to make sure the deal goes down. If a lender doesn’t return my calls promptly or gets us too close to closing without having the ducks lined up I get bent out of shape. MY lenders have my loyalty because they perform and even then, they’re only as good as the last transaction they handled. I really hate to paint the whole industry with such a broad brush but I really do get the feeling that if an LO doesn’t know you it’s a safe bet that the service will suck. I am, of course, ever willing to have my mind changed.
JD, I view working with an agent for the first time as an opportunity to win them over. As you mention, if an LO does not promptly return your calls or if you have the sense that they don’t have their ducks in a row, I wouldn’t want a buyer to work with them either.
JD Blackwell said:
Maybe if more of you “got
Old Guy,
If you are a licensed real estate agent in the State of Washington, can you please find another line of work? Your attitude needs such an adjustment, I’m not sure the leap is doable.
1) You are not permitted to choose lenders based on what they can give to you, including “leads”. A lender “hitting you up for BIZ” is clearly not the way to determine who your top lenders are for clients who need advise regarding lending sources.
2) An agent getting a lead from a lender is bad news, and lenders should not refer clients to agents. It is a form of kickback, and also puts the agent at odds if that lender is not the best for their buyer client. Hard to advise your client to use a different lender, if the lender was the first point of contact.
You are not the one getting a loan. If you do interact with lenders, the ONLY reason is to assist your clients.
Your whole rant is about your relationship with the lender when in fact, you have NO relationship with a lender unless you are the one borrowing the money. The only criteria for selection is the criteria of each of your clients…not yours.
BTW, it appears that you are an agent. Licensed agents cannot interact with the public in anonimity. You must reveal who you are when interacting with the public regarding real estate matters, and that includes blogging and blog commenting. If you can’t say who you are…that says much about you and your level of professionalism and expertise.
I’m cooking Thanksgiving Dinner and am just on a short break or I’d have more RANT for you. Your RANT is a boomerang.
This is off topic…but it’s my post: HAPPY THANKSGIVING 🙂
Is that AWOL
or how about a title for a new book “the fashionably late LO, and the fabulously dressed and dashing RE agent that descend and saved the disenchanted, and the drama therein, herein lies the devil as a contract detail rumored to be called a closing date on or before”
Or “it was 5 days prior to closing and all was quite…..”
That might sell better
old guy,
you are completely off topic. This post is about changing how LOs are compensated, not about your bad experiences with LOs. Why don’t you write a post about this on your own blog since you seem to have a lot to say. It just doesn’t belong here.
On that note, I’m getting ready for Thanksgiving too. I’m not cooking dinner this year, but I am bring a side to by in-laws.
“The only person mortgage lenders might need in the future is a gloried loan processor.”
I think I remember hearing that in 1999. I’m not being smarmy but what I say is true.
Why isn’t technology disintermediating the originator? It’s the financial planning piece. Consumers don’t trust themselves to make sound financial decisions.
The same reason wealth management advisors have charged higher fees in the face of disintermediation. Advice is priceless. The cult of the amateur is scary to the amateurs when it comes to such a large financial decision.
LAX- I don’t think that comment applies to you. Financially savvy and tech savvy borrowers can certainly get a suitable loan without my advice. Keep in mind that “you” only represents about 1% of the population.
Brian, I agree that the disintermediation hasn’t happened yet, but that doesn’t mean it isn’t going to. You think that the financial planning piece is the reason, but I think there are other explanations:
#1: Sales channel conflict between wholesale and retail players. Loan originators would scream bloody murder if consumers can make an end run around them and get a better price through a direct/online model.
#2: Mortgage lenders don’t want to see their products turned into commodities where the only differentiation is price. If consumers could easily shop online for a loan and get a genuine price quote and rate lock, pricing would be much more transparent and important.
Most consumers want a vanilla 30 year fixed mortgage, which doesn’t require deep financial planning knowledge. I agree that consumers need additional advice if they’re thinking about an exotic loan or short-term ARM. This is one area where the experts have probably worked to the detriment of their clients; not many customers would have chosen (or even known about) those loan types if an expert hadn’t given them a nudge.
I think shopping online for a mortgage will eventually become possible, even if few people actually close transactions there. Sometime during the ongoing real estate downturn, an adventurous lender will jump online and others will follow suit. In my opinion, this more than anything else, will change how loan originators are compensated.
laxtosnoco, consumers can shop on line now for a mortgage with vendors such as lendingtree and bankrate. However, I would highly advise against it (google either one with “lawsuit”).
Rhonda, lendingtree and bankrate don’t really offer the ability to shop online. They let you enter your personal info , which is then sold as a sales lead to mortgage lenders. It’s comparable to logging onto Amazon, choosing the book I want, and then being told that a sales rep will follow-up with information about how I can order my book.
I’m was talking about being able to log on to Wamu, BofA, etc., submitting a mortgage application and getting a good pre-qualification and/or pre-approval right then and there (subject to verification of course).
laxtosnoco-there’s a huge difference between shopping and a commitment or loan (pre)approval from a lender. Subject to verification is simply a prequalification and not a preapproval.
If what you’re proposing were to happen, I would anticipate that lenders would have a charge associated (yes, there is a cost to running a preapproval through an AUS) around $50-$150 per preapproval.
Would it be worth that to you?
“Most consumers want a vanilla 30 year fixed mortgage, which doesn’t require deep financial planning knowledge”
That’s the most expensive mortgage out there, LAX. That’s why we’ll never be disintermediated; we save people lots of money
I don’t think you can or would want to change the free enterprise system that is in place in all facets of American business. As with any business, some loans are easy to place and some are extremely difficult.
The problem with over regulation and controlling fees is who would do the difficult loans. Eliminate our compensation and you eliminate a large percentage of our population from getting a mortgage and a home of their own.
So let’s say you win and eliminate our compensation. We would find work elsewhere. Who would do your loan? Some can go to their bank. What if that bank doesn’t do the type of loan you need. Or your loan was complex in nature. You would trust a $10 an hour clerk? Even if you did trust them, what makes you think they could get the loan closed. Most loans I originate take thinking outside the box and a large amount of time and effort. What about the time we spend on loans that don’t close. We don’t make a cent. In fact they cost us money.
I find that people are more than willing to pay a commission to get what they want. It’s how our system works. Find a better system than the free enterprise system and I as with most of America would listen.
I’m still waiting…
John, I’m not sure if you’re addressing me or one of the comments on this post. Of course I’m not in favor of eliminating my compensation. I’m suggesting considering hourly instead of a percentage of the loan amount.
Many consumers don’t realize how much time it does take on challenging loans. Therefore, shouldn’t the more challenging, time consuming loans cost more to the borrower and the LO be rewarded for their efforts?
Should the easy “slam dunk” loans be rewarded with a lower cost to complete the loan and the LO is paid less since the loan was less effort?
We sometimes also may have a loan that should have been “slam dunk” however, the borrower was high maintainance…if we were paid hourly, we would be compensated for the extra time the “easy loan/high maintainance borrower”.
Plus, the borrower and the LO would agree upon the rate of pay. Everyone would know, before a transaction was consumated, the terms.
“What about the time we spend on loans that don’t close. We don’t make a cent. In fact they cost us money.”
We would be able to charge the loans that do close less since we would be compensated for those that don’t close. Our pay would not be based on closing loans; it could be begin at the first consultation.
The consumer would actually have the power to control how much service they want or don’t want/need.
Rhonda said…. “I would anticipate that lenders would have a charge associated (yes, there is a cost to running a preapproval through an AUS) around $50-$150 per preapproval. Would it be worth that to you?
laxtosnoco, I would say that Brian’s point about the 30 year fixed is that many consumers might automatically select that program or perhaps they’d jump at the lowest payment…however, if it’s the wrong program that’s not fully considering what their financial plans and goals are, then it is an expensive mortgage regardless of whether it’s a 30 year fixed or ARM.
That’s where a Mortgage Planner is important; to help develop a financial strategy that suits one’s personal needs. Not everyone is a 30 year fixed or a 5 year ARM. Having the correct mortgage can mean saving a substantial amount of money.
I do agree that some selected ARMs because that’s all they could afford. I also had clients where they were planning on investing the difference or that planned on living in the home for less than 5 years.
A good Mortgage Professional will help their clients really think about their financial goals. I would bet most Americans are going by their finances day by day; paycheck by paycheck without considering retirement, college tuitions, becoming debt free and/or building their wealth. They’re just making their mortgage payment or paying their rent, spending where their paychecks. A small portion of younger people I meet with are truly set. All they see is buying that house…typically one way bigger and nicer than my first home was, I might add.
By the way, one of the most expensive mortgages that I’ve seen was a 15 year fixed that one of my clients had. They refi’d it to pay off debts when I first met them and insisted on another 15 year mortgage. They have great credit and decent savings–savings should have been much stronger considering their ages/retirement. They did not see the value in a 30 year fixed (they’re in a home they’re planning on staying in) until the last refi. Now they’ve kept their debts in check and are beefing up their savings. Once their retirement needs are more in line, they have the option of paying towards the principal of the 30 year fixed to shave off the term/interest should they choose to.
It’s all about having a financial strategy that includes your mortgage.
Ok I see your point. Personally, I like it the way it is. I like the “sky’s the limit” thinking. I’m first and foremost a salesman.
I don’t think I would like to tell the next client I get, that their going to pay me by the hour, whether I close their loan or not. I think they would seek out the LO that would only charge if they got the loan closed.
If they had no choice but to pay by the hour I think the folks that know their tough, would likely pass or wait until they thought they could get done. Which would shrink the pie we all get paid on. And I don’t feel that being paid by the hour would make up for it.
Also with no immediate pressure to actually close the loan, the less than honest LO’s out there would just seek out the most volume regardless of the outcome. Of course they would be weeded out eventually, but the damage would already be done.
John – the damage has already been done in case you haven’t noticed. It was done back when when “difficult loans”, those loans where the borrower had poor credit, income or collateral, started getting purchase originations done. I assume that’s what you mean by difficult.
Aubrey Cohen claims on his blog that LoanInsights is exactly the sort of company the lax suggests will appear to attempt disintermediation. I have no idea if their are simply a referral site like lendingtree or whether they are legit. Any idea, Rhonda? (I’d link, but then this post would be trashed).
biliruben,
I’ve never heard of this company before. I checked them out and they do not have a mortgage brokers license; they state on their website they have a consumer loan license.
I have a hard time trusting any loan company where you enter your info and you don’t know where it’s going to end up (like a lending tree or bankrate).
Thanks, Rhonda. I’d be wary too.
If a site like this does gain legitimacy however, I could see it stealing a percentage of savvy shoppers looking to take back a portion of the YSP.
I am a experienced Realtor and Mortgage Loan Officer, and formerly a Senior Level 4 Mortgage Underwriter. I have probably audited and underwritten somwhere in the neighborhood of 100,000 loans.I have seen a lot of “predatory” loans, and now you you do not see any of those people or lenders around these days. Yes, a lot of people have been burned by these unreputable mortgage brokers and loan officers and that is why laws have been instituted to protect the consumer. While I wear both hats, I always have my clients best interest at heart. As a Realtor I work hard to find the best house they can afford and like. As a Loan Officer I always strive to obtain the best loan program and interest rate I can based on their credit score. I do not charge a loan origination fee but I do charge 1 point up front, and if any of you have looked at a GFE lately all the fees should be disclosed. Please remember a GFE is only an estimate, the final HUD is the clients final closing costs.
I am sure there are a lot of Realtors out there that have worked with clients showing them houses/condos. You searched the MLS, drove them around, and probably bought them lunch as well, only to have them not buy, because they changed their minds or did not qualify. And you did not get paid either because we are on commission.
Well, as a Loan Officer I work equally hard and have had clients not do a loan with me, because they did not qualify or did not have the down payment or had a bad credit score. I still did not get paid, since I am a commisioned person.
If I can get a rebate or YSP by the lender, then I believe that I earned it. As you feel as Realtor that you earned your commission. So all you people out there that think we loan officers don’t earn our commission, I challenge you to do a loan or 2 and tell me how easy it is to do. Yes, periodically, I have the slam dunk loan where I have the client that has a 790 mid FICO score and makes $20K a month and has no debt and lots of assets, but they are few and far between.
I’m on the laxtosnoco bandwagon for sure. And I agree with Rhonda’s original post. The idea of a mortgage professional getting paid for all the work they do is no different than the majority of most jobs in the country. In fact, I think the mortgage broker should have more of the consumer’s best interest at heart and that they should try to act more as a financial advisor/planner than most do today. I believe it is the mortgage professional’s job to educate and inform the consumer about all the things they are getting into since it is the consumer’s asset ad largest liability they will ever be responsible for.
I aliken this model to actual “professional services” like accountants and lawyers who do get paid for their time of work and advice. And both of those professions are bound to a code of ethics…..something business people are supposed to remember when transacting their own business.
Someone made a comment earlier about acting like a used car salesman vs a mortgage broker………….I feel like most brokers today act like used car salesmen with the current model, not like licensed, informed business professionals who work hard.
I think the reality is originator’s should a liken this to what the new focus is going to be because lenders are currently trying to go more consumer direct using technology and CUT ALL THE BROKERS OUT. The next generation of consumer’s that are coming up are very tech savvy and most don’t want to be ‘sold”. They don’t want to spend 45 minutes on the phone with someone when they can complete an app online in half the time and get a response sent to their email. So in the end, you can:
1. Continue to think that lenders will “need” to keep brokers around, hoping consumers at some point don’t revolt and have more legislation passed on how originator’s are going to be paid
2. Embrace the future of change and technology and the consumer mindset and get paid for the work you actually do or
3. You can go out of business.
Srae, you had me until the “CUT ALL THE BROKERS OUT”… and…I’m technically not a broker! Good Mortgage Brokers are an asset as they promote competition and can research the programs and rates of many various lenders where a bank does not. Although they say they “can broker” they don’t because they’re paid a lower split on transactions closed outside of the banks line.
I agree there will be a new focus…however the lense will be zeroed in on a significant fewer amount of LOs of all lending institutions. The bad actors and new/part time LOs cannot afford to do this job anymore. In addition, some are not willing to complete the licensing process (if you’re working for a mortgage broker in WA state…this does not apply if you’re working for a bank) so they will fizzle out too.
This is going to still take time to wash out.
We’ll get some interesting stats after the first of the year just seeing who was committed enough to become a licensed LO and pass their competency exam.
Regarding comments 69 and 70, this is a lead generation website. Although it says the service is “free” to consumers, the loan originator who purchases the lead will invariably add the cost of doing business back on to the fees charged to the consumer.
Consumers are better off doing business with someone LOCAL, that they can meet with face to face.
biliruben, Todd Carpenter at Lenderama has been writing about “what if Zillow Mortgage…” You might find that interesting! 😉
Thanks Jillayne and Rhonda! Not too much of a surprise, I guess.
I think you are right about looking for someone local you can trust.
What’s important about working with someone who’s local is that if something does go wrong, you can see the whites of their eyes.
When I wrote about the experience one of my clients had with Lending Tree, his lending-tree lender wound up being in Florida and he had no success dealing with her manager when what she promised fell apart at the last minute.
Referrals to a Mortgage Professional from people you know, trust and respect I think is the best route to go for selecting a lender.
Rhonda, I think you misunderstood – I didn’t say we should cut all the brokers out – I was saying the lenders are now trending this way. Every week a new announcement comes out with another large lender that has cut out their correspondent lending or wholesale channels. BofA ring any bells just as of late? I’m surprised brokers still have options left with all the lenders that have gone bust, shut down business units that work with brokers, and tightened up lending requirements. The current market is weeding out all the bad broker apples and the true mortgage brokers who actually are trying to run an entreprenuerial business and understand dynamics of marketing and residual growth instead of the quick easy buck now, will be the originators still around for several more years.
But……..as a borrower,just because they can only get one set of interest rates/loan options with one lender…..doesn’t mean tech savvy borrowers can’t hop to another lender web site and identify rates there and compare. You can even google a list of lenders. And really – just because brokers can give you a host of loan options….doesn’t mean they always do. Don’t get me wrong – I am all for small business enterprise, but I think there is a better way to do it in the industry.
The medium to large size mortgage broker firms with a correspondent line of credit, that have FHA approval, a compliance and auditing department, that trains their people, with a local client base of happy, repeat homeowner customers, along with ongoing business relationships with medium to top producing Realtors will do just fine in this market. In fact, these companies and their LOs will survive and thrive.
“By the way, one of the most expensive mortgages that I’ve seen was a 15 year fixed that one of my clients had. They refi’d it to pay off debts when I first met them and insisted on another 15 year mortgage.”
Why is it the most expensive, Rhonda?
I’m obviously not talking just about monthly payments, and I assume you aren’t either.
Just genuinely curious.
“The current market is weeding out all the bad broker apples and the true mortgage brokers who actually are trying to run an entreprenuerial business and understand dynamics of marketing and residual growth instead of the quick easy buck now, will be the originators still around for several more years.” – Srae
I really hope this is true, but I’m not sure.
biliruben, I’m not just talking mortgage payments either; in the case of my clients they refi’d out of a 15 year mortgage into another one, paying off some debts. They insisted on keeping the 15 and wound up refinancing again a few years later into a 30. I’ve written about this before at RCG. Every person has different financial needs and goals. A 15 year is not right for everyone and neither is a 30. My point is selecting the wrong mortgage and having to refi into another is an expensive decision. Nothing is free.
I do prefer a 30 year fixed rate mortgage over a 15 (generally) since a consumer can always pay additional principal towards the mortgage and effectively have a 15 year amortized mortgage; but the cannot do the reverse (have a 15 year and pay a 30) should they run into a situation where they need funds.
Jillayne, I hope you’re right! 🙂
srae, I think I did misunderstand you; thanks for your clarification.
“as a borrower,just because they can only get one set of interest rates/loan options with one lender…..doesn’t mean tech savvy borrowers can’t hop to another lender web site and identify rates there and compare”…good luck with that!
I think Jillayne hit the nail on the head with comment 80. Someone across the country is less likely to care about someone who could possibly wind up being their neighbor. Don’t get me wrong, I’m sure there are some excellent LOs who care for their clients across the country…rates on website mean nothing.
Even the rates I post at RCG on Friday are only good subject to the conditions that I quote. Most internet rates you see do not have “conditions”; they’re just bait and switch. When you click all the way through (trust me I do this) you’ll see just how much costs is attached to the rate–if they even honor that.
I think the discussions on this thread have been enlightening, I think there is some room for change and growth in the way we approach our clients and our compensation. In fact the only point of disagreement I’ve seen here is due to the strong wording of the title. Which is not what was meant at all.
Can’t we all just get along…LOL
Thanks, John. 🙂
Hello all,
I just came across this thread, and wanted to respond quickly to lax and Jillayne Schlicke. LoanInsights.com is not a lead generation site, it is the type of AUS system directly to consumers that lax references in his posts, and biliruben mentioned by name.
…licensed only in Cali, Kentucky, Ohio, and Washington.
Question, LIemployee:
Do you broker loans out on a regular basis or are you funding your loans on your own banking line 100% of the time?
Thanks.
Pingback: The Territory Blog » Blog Archive » Flat-Fee Loan Origination
Pingback: The Federal Reserves proposed changes to Regulation Z (Truth in Lending) | Seattle Real Estate | Rain City Guide
*The role of the state and federal governments should be regulatory to limit excess and abuses by Brokers, MLOs and Lenders but it should not dictate how and how much an MLO or or a Mortgage Broker should earn; this is unAmerican and contrary to a free market economy. The real estate market will not really fully recover unless ecessive regulations are removed and common sense regulations are enforced and competitiveness is unleached. Ultimately it would be unjust that a highly experience MLO or a Broker gets the same hourly paid than for working on a complex multimillion loan or one for a couple of hundreds of thousands. Again, the state and federal government should be protective of the consumer from excess and abuses but should not dictate how much an MLO or a Mortgage Broker should be compensated for his her skills and education.
Juan, I think it stinks that our industry has had our compensation regulated in this manner… I’ve had a couple transactions this week where I would have (pre-LO Comp) been able to help out my client… now I get to keep 100% of my compensation — I HAVE NO CHOICE.
If I have a challenging transaction that requires a lot of extra time or one that is highly qualified and very easy to do, I have to charge the same rate. I’m not so sure that’s fair to my clients or me.
I did wind up essentially getting a raise since I can no longer contribute any of my compensation towards my client with the Feds rule.
Rhonda, I am sure you know this, the Yield Spread Premium is the commission from Lender paid to Mortage Broker usually a meager 1/2 a point, so Broker’s only way to get paid fairly was by steering the Borrower to a Lender pre-set higher interest rate program and the only way for a Broker to get fairly paid was charging upfront points, this was not dishonest, this was / is “capitalistic free market”. This system was imperfect but worked fine until the the negative amortization and the stated income loans became popular giving unqualifiedf Borrowers Hundreds of Thousands of Dollars in loans that these unqualified Borrowers could never repay. Mortgage Brokers did not create those programs, Lenders did. What we need now is not to limit compensation nor dictate how nor from whom Mortgage Brokers get paid. The real state market is a self-adjusting market and should remain that way. Regulations should protect Borrowers from excesses, abuses, dishonesty and from untrained MLOs or Mortgage Brokers, that is all.
Juan, I rarely broker/ed loans however, the YSP had a huge range based on rate… the higher the rate, the more YSP. Some LO’s were more fair than others with the treatment of YSP (as far as crediting the consumer) and I’m talking about the days before brokers HAD to give YSP to the borrower. I don’t think it was as innocent as you portray it… and especially when it comes to LO’s who work for banks or credit unions and NEVER had to disclose what “rebate” pricing was.
I do think that since we’ve seen LO’s compensation be regulated, I do think it’s probably we’ll see regulators try to mandate how real estate agents are paid since their commissions are far more than mortgage originators and it’s a cost the buyers also incur.
Sure Rhonda, this is why I favor regulations that protect consumers from excesses, abuses, dishonesty and from poorly trained Brokers or MLOs. I agree, in the not innocent remark of yours, but I explained the yield spread premium was not the source of the dishonesty as it was the Lender compensation to Broker as I wrote before usually meager, therefore Brokers had to charge points in order to get paid properly and yes, there were abuses. in the form too many points. By legislating laws that dictate that an MLO must be paid hourly or to a limit, will only give more control to the Lenders, will increase Lender’s profit while degrading and desprofessionalising Mortage Brokering.