Merkley Amendment Will Transform LO Compensation

The Senate has passed an amendment to the Wall Street Reform bill that would ban loan originators from accepting compensation based on placing a consumer in a higher interest rate loan or a loan with less favorable terms.  The amendment also requires lenders to underwrite loans to assure a homeowner’s ability to repay the loan.

As you can imagine, loan originators everywhere are outraged.

Imagine not being able to earn extra compensation for selling a higher rate loan! Imagine making sure that homeowners can repay their loans! 

Wait a minute. Isn’t that the world we currently live in right now?

The horror we’re leaving behind if this amendment becomes law was the predatory lending frat parties of 2006.  From what I can tell, most (not all) of that is behind us. What are we really losing with the passage of the Merkley-Klobuchar Amendment?

Mortgage brokers have to disclose all yield spread premium earned as fee income on line 1 of the new Good Faith Estimate.  They will not be losing anything new.  It can be argued that mortgage brokers should have lost the ability to earn yield spread premium because it was horribly misused not by “an unsavory few

205 thoughts on “Merkley Amendment Will Transform LO Compensation

  1. Jillayne, if I understand your interpretation of this amendment, this means that consumers are losing the freedom to chose how they would like their mortgage rate priced.

    If you look at my last Friday rate posts, I’ve quoted 4.75 w/1 point origination fee ($4000 based on my scenario) or 4.875% priced with 0 points. The difference in spread is only 0.125% in rate (typically its closer to 0.25%) or $4000 in closing costs…. are you saying that now consumers will only have the option of paying me 1 point? The 4.875% options will not be an available option?

    If so, this is a mistake. Many times, it doesn’t make sense for a consumer to pay a point. Perhaps they don’t have the extra $4k (1 point on my rate quote example w/a loan amount of $400k) or they won’t break even in time.

    Many of my clients request rates priced with 0 points or they say, price our rate with closing cost only at $1000 or zero closing costs–they understand this is accomplished with rebate pricing which is financed with a slightly higher rate… they’re losing out too.

    This amendment also deals with banning stated income loans. I was never a huge fan as many consumers used it to buy homes they could never afford–it caused delusion. It also allowed LOs to be lazy or not learn how to read tax returns…now if a LO is not savvy enough to read tax returns, they’re probably not in business or they’ve lost that borrower–this is how it should be. However, there were times when stated income or no-doc loans have made sense. In seven years, I think I did 1 or 2 stated income loans… my last one was for a million dollar home where my client could have easily paid for her home cash. Her returns were complicated and she opted to not have to provide all of the documentation that would have been required.

    This amendment was passed in record time. Our Senate gave no time for industry or consumers to respond.

    Consumers are losing choices. Laws are being created or ammended for the lowest denominator for consumers and mortgage originators.

  2. This bill also screws the consumers that need the help the most… borrowers with small mortgages. If you typical loan is $300k plus you really don’t care if you are limited to 3% (which also includes the lender junk fees). However, if your loans are smaller, limiting compensation to 3% can make doing small loans unprofitable especially when factoring in the fixed costs that don’t change regardless of loan size. These consumers are going to be forced to go to banks where they will be doubly screwed.

    I don’t think most originators will care one way or the other. Most brokers don’t care about disclosing YSP. I know I don’t, but at the same time, I also don’t want my income artificially limited based on what someone thinks I deserve versus what I earned.

    At the end of the day, I still don’t get why it matters what LOs are making if the consumer is getting what they perceive to be the most competitive deal. All consumers care about is their interest rate and associated costs out of pocket. All this behind the scenes disclosure just muddies the water. Consumers aren’t as stupid as the regulators think.

    Brokers are dead men walking.

    • I agree, Russ…It’s going to impact lower loan amounts and tougher transactions. I don’t always make 1%. Sometimes I charge less if the loan amount is larger and/or the transaction is easier. If the transaction is more work, I might charge more than 1%.

      It’s nice to have the flexibility to price a loan based on it’s specific scenario. Consumers and vote with their feet and select a different mortgage originator if they don’t agree to the terms.

      Can you imagine if Congress were to regulate how real estate agents are paid?

  3. What is ironic is that all this disclosure is making it harder and harder for consumers to just simply compare terms on loans. I had a discussion last night with a borrower who was frustrated because he couldn’t understand the GFE, TIL, and how APR was calculated. This was a guy with a law degree and an MBA. He was just overwhelmed by the disclosures. All he wanted to know was simple:

    1) Rate
    2) Loan Amount
    3) Out of Pocket Fees related to the bank specifically (lender junk fees).

    These three simple items got completely lost trying to explain why APR was not his actual rate, what the purpose of the TIL was, why I was giving him fees that the seller pays, etc. Why the GFE didn’t match to the spreadsheet estimating his cash to close I sent earlier, etc

    Ironically, at the end of the conversation, I literally just had to say “Just trust me…” which is not I want to tell people, but you almost have to because the disclosures don’t effectively help people understand their mortgage. This guy doesn’t give too craps about SRP/YSP or anything else. He just knows I quoted 5.125% and $1000 in lender fees. PERIOD. It was better than what he got at his local bank and he is happy. He doesn’t care if I am making $500 or $10,000 on his loan. It simply isn’t relevant to his transaction.

  4. This is also a good setup to basically cut LO compensation pretty dramatically. LOs at banks are goign to become tellers. What is going to happen is that banks are going to offer a set rate, pay the LO a few crumbs, and keep the difference for themselves. The consumers ability to negotiate what is best for them will be removed. Just watch…

    • Russ, I’ve been calling LOs at banks “mortgage tellers” for a while now 😉 It’s amazing to me how much it seems that the big banks are running our Congress. A local BoA rep was touting on Twitter how they’re not paid overages because they really care about the consumer–when I compared rates, mine was lower in rate & fee…so what if she’s not getting paid an “overage” when THE BANK IS receiving it. She also told me that she is rewarded on volume closed in a month which I think is far worse than being compensated based on the merits of an individual loan…if I read this amendment correctly, this would stop that type of compensation (unless banks are excluded–again).

  5. Hi Rhonda,

    perhaps you would still be able to give them the higher rate loan….except now consumer loan companies/banks/ etc will need to disclose the back end compensation. We will have to wait and see how the final rules play out.

    • except now consumer loan companies/banks/ etc will need to disclose the back end compensation.

      Where have you been the last 5 years? Certainly not originating loans. We have ALWAYS had to disclose our back end compensation on our Mortgage Broker Fee Agreement or the investor wouldn’d fund the loan. It was NEVER hidden.

      Any other gems of wisdom with no real mortgage originating experience?

  6. Hi Russ,

    I don’t think brokers are dead. their numbers will get smaller before they grow again.

    I know we disagree about this but I definitely believe it DOES matter to the consumer how much a loan originator is “making” in the deal. Hiding compensation creates mistrust and puts LOs in an adversarial paradigm with their client.

    If it’s “no big deal” then why not just tell a client how much an LOI is making?

  7. Hi Rhonda,

    I am totally in favor of charging a higher fee for clients who need more hand holding v. a slam dunk bunny file. I am also in favor of consumers having to pay for the advice they receive from a loan originator today for “free.” There’s no reason why homebuyers and refinancing homeowners ought to pay a higher loan origination fee to make up for all the time LOs spend giving away their valuable knowledge for fee to non-paying consumers. Sign me up to lobby in favor of this.

    • 🙂 We’re totally on the same page here.

      Jillayne, I don’t care if people know what I make, when they ask, I tell them.

      I do think it’s odd that this is one of the few professions where this has become an issue… I can’t think of other professions where we ask someone, “what are you making”?

      I don’t know your profit on your classes or what the car salesman made when we bought our Honda Fit a couple years ago–I didn’t care. I just wanted to make sure we paid no more than X. If he’s paid y or 2y–I don’t care.

  8. Let’s stop here, please. Mortgages on Real Property have become the single most devastating financial instruments in the world. The global economy has collapsed, and will continue to suffer because of these loans.

    The borrower, or the borrower’s ability to pay, only has to do with excess profits to the lender. If some one wants a property that they desire, and are willing to pay above value, great, the ability to pay is an important thing. Cash to the table would be better.

    Mortgages are based on the value of the asset. The value of the asset, and the means of determining the value of the asset are all that is important. Mortgage Backed Securities are only as good as the value of the assets.

  9. I can’t say that any clearer. A Loan Officer? Advice to the client? Has nothing to do with what we are doing today.

    Once you mentioned a car, the loan is based on the saleability of the vehicle. There is a Blue Book Value. What some one paid is irrelevant because any one can pay below Blue Book, lenders don’t lend above the value.

    The big problem is we are talking a quarter, to half, million dollars of debt for properties. It’s millions, billions, and trillions of dollars of debt. That debt is sold as securities. Secured against a value of an asset.

    A loan officer, if they are dispensing advice, should be telling customers that taking out a loan on an extremely questionable asset value is a very, very, very risky position to be in. The risk today far out weighs any imagined future gain.

    Banks are now in control of the Real Estate market place globally. People are unable to pay the loans on the mortgages that are currently outstanding. The foreclosure rate continues to climb and is projected to continue to climb as the price of properties continues to fall. As the millions of foreclosed properties currently on the books continue to sell the price of other properties will continue to drop. The drop in pricing will generate more foreclosures.

    The only question to ask is why any bank is making loans on properties they know are over priced.

  10. Of course this author is in Seattle, i.e. one of the most liberal cities in America. And of course, her little resume does not mention anywhere about working as an LO, yet somehow she is the go to person on mortgage related ethics. So why the hell is she writing it? This is another attack from leftist writers and a leftist Congress against private business to appear to the populace as “getting those evil bankers”… no attention to the fact that these same evil bankers stuffed their coffers with millions of dollars over the years. I also hate her condescending snide tone in the article. Bottom line Jillayne go F#$## yourself. Until you have originated a loan in this market, you have no business chastising those that do.

    First of all, the vast majority of the borrowers I talk to now are high FICO, good income borrowers. You are NOT getting anything by them. Her story about some borrower with an MBA misreading the forms…sounds fishy to me. Any of my borrowers that don’t understand something, they call…or they won’t sign. These borrowers want what they want…they want to know the rate and closing costs. That’s it. I tell them for a higher rate we can have less costs since we can pay for them, and they love that part. The difference in payment many times is between $15-20 a month, yet they save thousands of dollars in closing costs. If they want to know what we make, I tell them. AND WE HAVE TO DISCLOSE IT. However, I have never been directly asked that questions, because THEY DON’T CARE. They want a good rate, for good costs and to close quickly.

    I can’t wait until the Obama regime is voted out of office so we can undo all these stupid rules that end up hurting consumers. As well as liberal “experts” like this one that have no experience in the trenches. Oh what a day…and its coming soon.

    • Yeah, this is a typical Loan originator looking for the next victim. High FICO, good income, that’s all that matters.

      Experience in the trenches, I love that part.

      This person is a crook, the same as the very vast majority of loan originators. I hope the Obama regime is smart enough to round these people up to be taken to court for fraud, theft by deception, and swindle by device.

      I got the experinence kid, if you have the time for a discussion.

      • Well where do I begin…

        First of all, my comment was not aimed at you David. Unless you are the author posting supporting posts which is pretty sad.

        Let me address your completely ridiculous comments one by one:

        “Yeah, this is a typical Loan originator looking for the next victim. High FICO, good income, that’s all that matters.” Hmm High FICO, good income…isn’t one of the points of the article about tighter underwriting guidelines? Yes that is all that matters TO THE LENDERS. No credit, no income, no equity…NO LOAN. Are you sure you have experience loser? Doesn’t look like it to me. Next victim huh? Yes it is so terrible giving customers great fixed rates below 5%, and giving them a CHOICE on how to pay for the costs….Yep I’m a monster!! I thought liberals were pro-choice…oh wait that’s just for killing babies, not personal freedom.

        Experience in the trenches, I love that part. I was commenting on the author’s self-published mini resume at the end of the article. No where does it say she worked at a bank, broker, or mortgage company. She is essentially a “consultant” who spews her “expertise” without any real field experience that she can mention. If she had it, wouldn’t she mention it?

        This person is a crook, the same as the very vast majority of loan originators. I hope the Obama regime is smart enough to round these people up to be taken to court for fraud, theft by deception, and swindle by device. Due to the new NMLS requirements, I have had my fingerprints run for a criminal background check 5 times with the FBI. No criminal here. What fraud? What deception? Can you elaborate, or like most liberals you just spew venom without the balls to back it with actual facts? Since 2008, and especially since the GFE 2010, our disclosure requirements are OVERKILL. The borrower is fully versed in what they are getting in to. Pay option ARMs and the like went the way of dinosaur TWO YEARS AGO. We are legislating for things that haven’t happened in the market for years. If you are experienced like you say you are, you would know that.

        This bill is just wrong for everyone involved. It takes away consumer choice on how they want to pay for their costs. But Democrats don’t care about personal choice…that is why America will use their choice to vote NOBAMA and the regime out.

        I got the experinence kid, if you have the time for a discussion. Any day pal. When you have some actual facts and real experience come talk to me.

        • OK kid this ought to be easy because I am a far right wing fiscal conservative, unlike you.

          The lender is making a loan, you are so right about that. So that’s it, the lender is making a loan based on the borrowers ability to repay. Then they have legal recourse when the borrower defaults, which they will.

          You’re in Central Florida from what your web site says. In 1999 I was in the process of purchasing a property out side of Miami for $25K. It was little high for my tastes, but I have relatives, let me rephrase, I had, relatives there, so I figured why not.

          Long story short the agent bought the place and sold in 2006 for $275K. How does a place in Florida go from $25K to $275K? Let me guess, you don’t care.

          The people who care are my relatives who paid $310K for a place in Miami. They walked away, and are out of the country now. I think the place resold for like $180K at auction, still way over priced in my opinion. I know, you don’t care. It ruined them financially, of course they didn’t listen to me, but you don’t care.

          The problem is the lender sells the Note. The Note gets packaged and resold as a security. My relatives $310K was used as a security in a portfolio that in the next three years will be worth about 25% of it’s price, as a security.

          We are all paying for you to make a couple of bucks. I pay for you to make a couple of dollars through increased tax obligation. We need to spend more, and more tax dollars to regulate you. Your little po dunk industry of sales mentality needs to have more and more tax dollars thrown at it to cover the losses you rack up with every loan you make.

          That makes you a welfare for work recepient.

          So no, I would prefer to jail you. It would be cheaper for all of us if you were under arrest (The apprehending or detaining of the person, in order to be forthcoming to answer an alleged or suspected crime.)

          You see my thing is that the recourse the lender has is to take the property back. Most people with loans should be sending the property back.

          Loans, mortgages, are being made today on over priced assets. Once the borrower wakes up, and realizes that they are losing thousands of dollars every month, they should be walking away tfrom those bogus loans. That’s the only way anything will get fixed.

          • Tell me David, what is it you do? It seems you have some personal vendetta against the entire real estate industry. It sure seems you are not in the industry, because you have no idea what it is going on.

            What is it we should be jailed for? You are certainly no conservative in my book. Your words tell a very different story. Yes let’s jail people in the private sector who work hard to make a living. Hmm sounds liberal to me. So you bought at the height of the market. Boo freaking hoo. How does that make you different than the people who bought at the height of the dot com boom? It is the market. It is capitalism…deal with it. You wouldn’t be crying if you bought low and sold high and make a bunch of money. Yes, you have to blame someone. That is what this whole bill is about ….blame. It is not the mortgage originator that created the products to sell, or the investment banks that created all these credit default swaps and crazy derivatives. It all began at the top…they got bail outs. We got licensing, HVCC, this stupid reform bill, and more scrutiny.

            The point of the article and the legislation being discussed is the use of YSP to pay for costs and to compensate loan officers. We have ALWAYS had to disclose it. Do you even know any of the new legislation that is ALREADY in place? HVCC, MDIA, HERA, GFE 2010, etc? You have NO IDEA what you are talking about, and just spewing hatred from your bad real estate deal. Get in line. Stop being a cry baby, and tell us something constructive.

  11. Hi ECD,

    You can go ahead and talk to me in the first person. I was out of town all day but I’m back in town now. I have an extensive background in mortgage lending. I’m not so sure the final version of the Merkely amendment will take away a consumer’s choice of paying closing costs from overage. Instead, the amendment is aimed at loan originator compensation and the ability of an originator to earn extra compensation in the form of yield and also a bank loan officer’s overage. This means all LOs would disclose their overage and not just brokers, potentially creating a level playing field. The Merkley amendment would not affect brokers as much as consumer loan company LOs (non-depository lenders and mortgage bankers) who can earn overage today by selling a consumer a higher rate loan. The end result will be a future market where LOs will feel a downward pressure on their fee income as ALL of it would be disclosed up front.

    Many LOs seek an explanation for why an LO must disclose all compensation whereas other retail salespeople do not have to do this. The answer is that buying a mortgage loan is radically different than buying a pair of shoes or a big screen TV. The consequences of signing a note and deed of trust are far more grave than signing an agreement to buy a new lawnmower as David Losh pointed out. Loan originators are transitioning from being retail salesmen to being more like a doctor, lawyer, CPA, paralegal, nurse practitioner, and other traditional professionals where the amount of knowledge needed to make an informed decision is far greater than the average, random consumer. I have written about this extensively over the past decade.

    I did not vote for President Obama in the last election. I thought that might surprise you. And yeah, sometimes I come across acerbic in the tone of my blog posts. Sometimes that’s intentional, to create interest and invoke strong opinions. Thank you for stopping by RCG and sharing your perspective.

  12. ECD,

    Read David Losh’s comments again carefully. The average random consumer is very wary of loan originators because of what happened during the bubble run-up. The industry itself did little if nothing to stop predatory rates and egregiously high fees. So now the government is stepping in and making laws to govern behavior that previously was an ethical choice.

    • Jill,

      When was the last time you originated a loan? Or have you ever? Your information is blatantly misinformed. The industry has done PLENTY to regulate itself. Mostly in the product selection and documentation. That has been since 2008. All the things these bills mention happened YEARS ago, and the people they want to target are LONG GONE. Predatory rates and high fees? There are Federal TILA laws that have been on the books for decades that define high cost loans. The law was followed.

      It was a bubble. Yes just like every other bubble in history, the party stops and they need someone to blame. It is like going out to the bar, getting drunk and having a spectacular time, then you have a hang over and you want to blame the bartender for serving your drinks. Then you want to make a law for the bartender to announce to the bar how much he makes on each drink.

      This amendment and all the recent legislation is not needed. It is an assault on the broker channel. We have ALWAYS had to disclose our compensation on our broker contract. Bank LOs never had to, and they won’t have to with this new bill. Just like they don’t have to be licensed, but I do. I have to be fingerprinted, tested, credit checked, and continually educated. They don’t.

      I appreciate the discussion, but your rationale needs to be based on what is going on in the market.

  13. Hi ECD,

    The mortgage lending industry does not self regulate. Instead, they have many trade groups and trade associations but that is far, far different than a self-regulating professional association.

    Since you are a mortgage broker, I submit the following website from the National Association of Mortgage Broker’s website:

    Take a look at how they recommend consumers proceed with complaints regarding mortgage brokers. This page directs consumers to simply file a complaint with the state government regulators.

    And brokers wonder why regulators continue to ask for more laws governing mortgage brokers.

    ECD, the industry MELTED DOWN in 2008. That was no “self regulation.” that was the capital markets telling the world nobody had any confidence left in what kind of crapola was being originated at the broker and bank level and stuffed inside pools of mortgage backed securities.

    High cost loans referred to in the Federal Truth in Lending Act were for home equity loans only. Here is the statute. Take a look:

    We only recently (2009) added new provisions for high cost loans that were not home equity in nature.

    ECD just because brokers have had to disclose YSP does not mean that broker LOs actually DID disclose YSP.

    I have literally met THOUSANDS of loan originators over the past decade and I can tell you from experience that the vast majority of LOs who worked under a broker over the last decade received virtually no compliance training. Some never even sent out a GFE. Others disclosed their YSP on the wrong line, hid it, engaged in bait and switch advertising, under disclosed and then jacked up YSP income on the HUD, and so forth.

    Now I’m not throwing 100 percent of Broker LOs under the bus. Surely we still have some highly respectable broker LOs out there who never engaged in violating state and federal laws. Unfortunately because the industry did not self-regulate, the entire broker community has really been kicked to the curb over the last few years.

    Broker numbers have dropped dramatically and they will continue to get smaller before they grow again.

    The Merkley amendment will not affect broker LOs as much as it will affect non-depository mortgage banker LOs.

    Many of my students who have met me in person know that I am a strong advocate of creating mortgage industry self-regulation. Surely there is enough blame to go around for the bubble and its deflation. One of the ways to begin to start earning the respect of consumers is to fully inform the consumer of all compensation and do away with hidden fee income.

    The majority of people who are left in the industry don’t have a problem with that and it sounds like you don’t either so let’s start re-building consumer trust.

    As soon as the industry embraces a full, transparent, informed consumer disclosure process (beyond just handing the consumer some forms,) the government will get off our backs and stop creating more laws.

    This is what I’m working on for the industry. Would you like to take a look at the full informed consent process? I will be teaching this in the 2011 mortgage lending ethics class. Perhaps next year I’ll have this available as an online class and you can take a look and provide feedback.

    I hope you have a very nice weekend.

    • Every time I try and respond point by point, I get the spam message. Your point on lending laws is wrong. Regulation Z and Regulation X as well as Section 32 of the TILA, have always spelled out max fees. I agree that not all brokers are cut from the same cloth. I think you would be proud of our company’s compliance vigilance. Not all are like that, but those people will be shut down soon anyway. Less competition for that that do it right.

      I still don’t know why you feels that consumers are up in arms about originator compensation. I have done hundreds of loans, and THEY DON’T CARE. The borrowers that are left are high FICO, high asset, high income people. You do NOT get anything by them. They want the best rate, for the best costs, and to close quickly. Many of my loans are all YSP, because most borrowers like to get into a loan for the lowest closing costs, when the difference in payment on a lower rate is negligible. Most people move every 5 to 7 years anyway. They know that, so the pick the higher rate option. I don’t know where you are getting your info from. These regulations are just plain bad. There is no level playing field. The banks want to own it all. Started with HVCC. Then the SAFE Act ..hmm wonder why they don’t have to be licensed? This regulation is just plain not needed.

  14. Well Geez, my link works, you just have to click my name, or Google me. We sold our last place in July of 2007, and took out every dime of equity in our personal residence.

    On Saturday July 28th 2007 between 10AM and 2PM I gave my last talk about Real Estate Investing. The people were a little confused by my advice to sell any, and all, property they may have, bank the money, under FDIC limits, of course, and wait.

    Now three years later we are just now, maybe, able to see a time, in the not too distant future, when you can buy a property again.

    Here’s how this all worked. My plan was to sell here, and put our money in Peru. Sad to say that property prices there have tripled since 2004. I’m sorry, because the crash there will wipe out almost any one with money, in Peru. We have an acquaintance who is in the hole for a few million dollars, along with investors, but not us.

    So while you make your little money, and whine about it, you still have your job. Many people don’t have jobs, all because you, need to make your little money by lying to people. Mortgages are a lie. Real Estate values are a lie. Any one giving a lender money is helping to destroy more lives.

    These regulations are a way for you to continue to swindle people. Mortgages are so far out of control, globally, that we are at a point where debt forgiveness is the only alternative.

    So you do nothing for the investor, lender, borrower, economy, or tax payers, who pay you, but you make a commission. Boo Hoo, for all of us.

    • Well the first part of your post was interesting. Even commendation worthy for such foresight. But of course, you went spewing garbage towards the end.

      So while you make your little money, and whine about it, you still have your job. Many people don’t have jobs, all because you, need to make your little money by lying to people. Mortgages are a lie. Real Estate values are a lie. Any one giving a lender money is helping to destroy more lives.
      These regulations are a way for you to continue to swindle people. Mortgages are so far out of control, globally, that we are at a point where debt forgiveness is the only alternative.
      So you do nothing for the investor, lender, borrower, economy, or tax payers, who pay you, but you make a commission. Boo Hoo, for all of us.

      Do you honestly think that this whole real estate crash started from the bottom up? So in your opinion it all started with the loan officers? Tell me why would we write paper that no one would buy? Many had a hand in it, but like most things they start at the top. Wall Street wanted more mortgage paper, and wasn’t getting enough with full doc fixed Conventional loans. So guidelines loosened…stated income, lower credit scores, 2/28 loans, etc etc. Why would banks create those products? We sold them, because they were what we had available to sell. Borrowers called us and wanted to buy, refinance, etc. We gave them what they wanted. Now the party is over, and Wall Street won’t take the blame of course. It is all the big bad loan officer’s fault. What a crock.

      How do I lie to people? Swindle people? Again, you are making accusations without any proof. Your irrational hatred for loan officers is mind boggling. Care to back that up with recent facts? NOT what happened in 2006 and 2007. I am talking about NOW. Well?

  15. It ‘d be an earnest and reliable move to start to pay loan originators based on customer satisfaction surveys. Clearer terms, no hidden or falsely -created value would make life easier for lenders, borrowers as well as brokers.

    • Hmm another realtor. Can we limit your compensation to 1% a deal, and credit check you, fingerprint you, test you, educate and re-educate you too? Where are the “hidden” fees and falsely created value that WE do? What about you and your realtor friends? You guys are the “market experts” right? Where was your sage advice warning borrowers about the market? Oh of course, I forgot it is all the mortgage brokers faults. What a crock.

  16. Jillayne Schlicke How much do you make per year? how much do you make per post? how much do make per job? Do you make the same each month? Can you make nothing one month and alot the next month? Does your credit score have to be high to keep your job? Do you think everyone should know how much you make. If the paper doesn’t print your article do you not get paid? Ask mortgage borkers these same questions.

  17. That would be very interesting John. Well it seems that the author does classes for realtors. That makes sense. Of course realtors are the innocent ones right? We can’t go after their sacrosanct 6% commission. Meanwhile all they do is turn a key. 6% please. What a crock.

    The author has yet to answer any of my points above directly. For instance…what experience do you have? Teaching realtors is NOT experience. How many loans have you written as a loan originator…RECENTLY? None is my guess.

    I would appreciate an answer to Johnny’s question too. How much do you make? Can we credit check you, fingerprint you, limit how much you make too?

  18. People like Jillayne and these regulations are the only thing that keep Loan Originators in business today. I didn’t realize that the threshold for being a mortgage loan originator was so low. You obviously, now two of you, don’t understand the business you are in.

    The regulation of loan originators is in part because they deal in large cash transfers. Those transfers are secured, supposedly, by Real Property. What if a lender makes a loan on a property for $400K that is only worth $225K. What if the appraiser is in on the deal? What if the appraiser takes great interior, and exterior shots of the property, then compares the property to others that are a quarter of a mile away? How about 6 blocks?

    OK? Nobody cares, right? What about when the borrower stops paying?

    • the entry for being a mortgage originator was sadly very low…that stopped a couple years ago (or at least a bar of entry was added) for those LOs who are regulated by DFI in the State of Washington.

      Now with the SAFE Act, you will have two classes to chose from when selecting a mortgage originator (unless, David, you’re going to pay cash or do some seller or what ever financing and skip the lending world you loath so much)–you can work with a licensed LO or registered LO.

      Mortgage originators who are licensed (non-depository bank LOs) have a much higher bar than those who are only registered (bank and credit union LOs).

      I’m predicting that bank and credit union LOs charge a lower origination fee–but the rates, when I price them out, tend to be higher–so it’s not really apples and apples–the bank is profiting more than the LOs… I also think that we’ll eventually see more and more “mortgage tellers” at these types of institutions… those who are willing to go though the additonal steps of being licensed are at a higher professional level and worth more than a mortgage teller. Mortgage tellers will have less experience and all the bank cares about is pumping that volume. I can’t make a deposit at Chase without the teller trying to review all my other info w/me…they want my mortgage.

      in the end–the consumer pays regardless–BUT they need to open their eyes and realize who and what they’re paying (LO or bank) for the same product…possibly same service, but doubtful, in my opinion.

    • Wow David. Is that all you can do is spew non-constructive dribble? Forget the facts…..just personal attacks. Let me AGAIN address your ridiculous comments one by one.

      -The only thing that keep us in business? How is that genius? We understand perfectly the business we are in. Yes I know you love to keep giving us the history lesson for things that happened 4 years ago. We know all about the secondary market, etc etc. Again we are talking about TODAY.

      Lender makes a loan for 400K on a 225K property? WTF are you talking about? Haven’t you heard of the HVCC or the extremely tight guidelines that have been in place for YEARS now? The appraiser in on it?? Dude you are living in the past. I can’t even talk to an appraiser. It all runs through the bank. But you such an expert…yeah right.

      Your points are just blatantly misinformed, you have an irrational hatred of loan officers, because you lost money in the real estate market. Waa Waa you cry baby. Grow up.

      When are you going to make a point that is relevant to TODAY’S origination environment? I feel neither you nor the author have any insight into what is actually going on in the market today, and do not realize how this bill just like all the ones that preceded it actually hurt the consumers that they are designed to help.

  19. What if the buyer, the seller, the appraiser, and the loan originator were all in on it? Now how about just the seller, appraiser, and LO? How about just the appraiser, and LO? How about the LO promises the appraiser a year of steady work and never cuts the guy in?

    No, I didn’t forget the thieving Real Estate agent and his stinking little 6% commission. Then again, if the agent was smart he would be either the buyer or seller. What’s the 6% compared to $100K of clean, legal money?

    Now that’s just one case, and there are millions of these loans in default, for a wider variety of reasons than because the buyer was stupid. Really, were people calling you for free money? Huh, go figure.

    Now how about the lenders, and loan servicers, who generated millions of these bogus loans then sold them as investment grade securities?

    Real Estate, like in the term Real Estate agents, means a tangible asset. Loans, mortgages, Notes, and promises to pay, are just promises. So yeah, you need to be watched, regulated, and scrutinized.

    • David…there are already many regulations on the books. Many of which I welcome. I do not mind being licensed. I think everyone should have to. However, bank LOs do not have to be licensed. We have to be credit checked, finger printed, tested, re-educated etc.

      David, how about we limit how much you make on whatever it is you do. Let’s license you, control how you make money, and have the government decide what you make. Sounds like the liberal dream to me….you are no fiscal conservative based on your comments.

      When you have something constructive and pertinent to today’s market instead of the market 5+ years ago, let us know.

  20. Holy Cow Rhonda you got caught in the middle of my comments.

    When I write a long comment the system won’t let me send it. It tells me my comment is “Spammy.” So by sending it in two halves the system let’s it through.

    Now, I don’t loath Loan Originators. I like you, and Scott Cunningham of Primewest Financial at 206-632-5626. The Primewest Financial domain names happen to be directed at my web site because Scott likes to know, see, who he’s doing business with. I have been working with Scott for 20 years. I like him because he’s honest, retired, and keeps doing what he does because he likes it. He likes the people. He likes helping people, and that’s what it’s actually all about.

    Now let’s see if the system thinks that’s spammy.

  21. 🙂 David… I swear when I read most of your comments, I pick up on loathing of mortgages, mortgage originators and banks… it wasn’t just this one comment.

    I will say that when I was in title/escrow, there were very few LOs I had any respect for. Being a mortgage originator is much different than watching it from the sidelines–even as a escrow/title person or real estate agent (I’ve never been an RE agent)…with that said, there are still a handful that I really respect….and a decent group who I think are decent and I’m glad this market has wiped most the low-life’s out. We won’t be able to truly do this until ALL mortgage originators are under the same standards (licensed vs registered).

  22. The goal is to own your property free and clear. The bank is always the bad guy, always has been, and always will be. Beating the bank is how you get ahead, staying ahead of the leverage.

    Now kid how did I lose money? You seem to be whining a lot. You’re abusive. You started out being abusive. Do you think that might have something to do with your business being off?

    Because I’ll tell you, from what people tell me there are a lot of idiots taking out loans today. You would have to be absolutely brain dead to buy or refinance a property with a lender, today.

    What about today? All the things I mentioned is exactly why your industry is getting the little bit of regulation it has gotten, today. Loan Officers, Loan Originators, Lenders, and Consumer Credit, no matter how you spin it, have collapsed the global economy.

    I like Rhonda because she, along with Jillyayne, are making some positive attempts to educate the public. What do you do? You’re whining.

    • David,

      Wow. Again lack of facts. First about being abusive. I seem to recall your very first post to me. You remember the one where you called me a crook and wanted me put in jail? You started the abuse buddy, let’s be clear about that. My business is just fine. Forgive me for being outraged by the ivory tower types like you and Jillayne. She even admits that she never originated loans. Yet she can wax poetic about how great this law is for consumers, when I doubt she even talks to many borrowers. I talk to scores of borrowers every single day. I know what they want, and this law takes away their choice.

      Goal is to own free and clear? True to a point. It should be, but statistics do not support that and nor from my experience. Most people in this country move every 5-7 years for various reasons. Very few actually take a loan to term anyway. They want to own a home and not pay rent. Isn’t “stop throwing your money away on rent” a standard line in the real estate broker world? The goal for borrowers is to get the best terms they can on a home loan. The bank is the bad guy? For what? For arranging home ownership for millions of people? Yep they are evil all right. The cost for arranging that financing can be paid for in various ways. According to you and Jillayne, you want to take away consumer choice on how to do that. She even said herself…1% origination is what is coming back. Let me tell you from EXPERIENCE…borrower’s would much rather not pay up front fees. But according to you, the government should limit the choice.

      Don’t give me that song and dance about “well now the customer will be informed, etc etc.”. They are informed, and have been. Brokers can not disclose all they want, but in this environment the wholesale investors won’t fund the loan without proper disclosure.

      It seems we are going around in circles here. I doubt this will make it back through reconciliation with the House and the full Congress re-vote. For consumers, I hope I am right.

      • You had me at “Bottom line Jillayne go F#$## yourself.” It was the culmination of some flag waving for your profession, “This is another attack from leftist writers and a leftist Congress.”
        You just can’t make stuff like this up.

  23. Rhonda you keep telling us that there will be two classes of loan originators and I keep not listening. Tonight I’m wondering why I haven’t been listening. I mean, I agree with you that there are definitely two classes of LOs. In fact, there are three levels of LOs but broker LOs (in Wa State) don’t seem to want to actually TELL the public that they owe fiduciary duties to their clients which, from my perspective is a fantastic choice for consumers. Maybe it’s because broker LOs think their liability is higher….but….if done correctly, the liability is actually lower. This will take time for broker LOs to learn.

    Banks aren’t going to be educating the public any time soon about “registered LOs” v. “licensed LOs” because it does not serve them to do so.

    That leaves mortgage banks and mortgage brokers to educate the public on the differences between the two.

    Honestly? I don’t think the consumer cares about the differences because the industry has spent too much time teaching the consumer to shop based on rates and fees not to shop based on registered v. licensed.

    I care. You care. David Losh cares. Maybe ECD cares, too. But I’m not convinced the consumer sees much of a difference.

    To the average random consumer, it IS a level playing field.

    …and therein lies the problem: How LOs can differentiate themselves.

    • Jillayne, when I talk to consumers about the differences between their LOs being licensed or just registered, they do care–they’re typically surprised that this would even be allowed. You’re right, it will take the LOs who are held to the standards of being licensed and who have chosen to be licensed (hey, they could all go work for banks if they don’t want to keep up with all that’s required to be an NMLS Licensed LO) mortgage originator.

      Bank LOs won’t boast about only having to be registered.

  24. ECD,

    Real estate agents are already licensed, fingerprinted, background checked, etc. in many states. There’s all kinds of downward pressure on Realtor/agent commission. They must operate according to many state and federal laws, just like originators.

    You keep assuming that the Merkley amendment is going to limit your compensation.

    That is not accurate.

    Instead the Merkley amendment seeks to limit compensation by placing the consumer into a worse loan program than what the consumer could have received. The amendment limits compensation tied to placing the consumer into a higher interest rate loan (and it sure sounds like, from reading the amendment that it will NOT limit people rolling their closing costs into the loan in exchange for ahigher rate, just that an LO can’t help themselves to extra compensation through this avenue.)

    This means LOs will need to JUSTIFY THEIR FEE.

    Real estate agents like David Losh and others do this all day long.

    • Where is the pressure on real estate agents? Where? How do you justify your fee as a real estate agent? With the Internet and more sophisticated consumers, borrowers can search the MLS just like you can. I asked a few people in my office about real estate agents when they bought their home. ALL of them talked to the agent once, and they didn’t even show the house or drive them around. All they did was give them the listings. Yet on this transaction they made over $12,000 on a $400,000+ loan. For what? Computer access? Meanwhile the LO on this transaction should be only allowed to make 1% or less according to you. So the realtor didn’t do shit, yet makes $12,000 and the LO that arranged the financing, got title, insurance, deeds, surveys, etc etc and all that other crap makes $4,000? We do way more work than a realtor ever does. How is that justifiable? It isn’t. Yet another fallacy in your argument.

      If you can justify it all day long….enlighten us.

  25. ECD,

    We don’t have many rules on Rain City Guide. BUT there are two general rules: Attack the argument and not the person, and no blatant self-promotion.

    Your comments have been right at the edge of me deleting all your personal attacks. This isn’t a forum where anything goes. Attack the argument and not me or David or any other commenter and you may keep participating.

    Thank you for respecting the rules of

    If you’d like to know how much I make, simply visit my website, take a look at the per-person price I charge, multiply it by an average number of students you’d guess attend classes, multiply that by 3 or 4 days/week multiply that by 52 weeks/year and divide by 12 to come out to a random guess as to the gross revenue of my firm. Of course you’d also have to subtract costs such as room rental fees, photocopying, and money paid directly to my regulator, NMLS. They charge me 1.50 per hour PER STUDENT every time I teach a class. Then subtract state and federal taxes to get closer to a net, before business expenses and before employer and employee taxes are paid before I see any of that money to pay my own mortgage.

    But I love what I do.

    I could easily have quadrupled my annual income during the bubble by originating but I chose not to. I’m really good at writing courses, teaching, and doing compliance work so I choose to earn my living this way.

    I don’t originate. I teach origination and mortgage lending law instead.

    To assume just because I don’t originate that I can’t possibly understand “your world” is fallacious logic. Then why would you read anything written by an attorney who has never originated, or a company CEO who has never originated or an underwriter who has never originated?

    Dude, if you want to ONLY hear opinions from ONLY originators, then crawl back to the Mortgage Grapevine and you guys can just keep talking to each other. Why keep coming back here if you don’t respect anything anyone has to say unless they have walked a mile in your shoes?

    I learn all kinds of things from all kinds of people all throughout the industry. I don’t just learn ONLY from other educators.

  26. Johnny P,

    Comparing the job of a mortgage lending educator to the job of a loan originator is like comparing an apple and a chair. They belong in different categories.

    Attending a continuing ed ( or prelicensing class ) and helping a homeowner with an enormous financial decisions are two very, very different consumer purchases.

    The possible good/bad consequences are just so much higher with purchasing a mortgage loan v. purchasing a continuing education class that might cost anywhere from $85 to $400.

    Instead of attacking me for writing this article, why not turn and look within the industry and ask yourself why the industry let predatory lending run rampant during the bubble?

  27. ECD says: “Regulation Z and Regulation X as well as Section 32 of the TILA, have always spelled out max fees.”

    Section 32 loans are NOT what we’re talking about here.

    Please show our readers exactly where in the statute the federal government spells out exactly what your maximum fees may be. For your convenience, here are the links to the statues. Please cite the exact place.

    Regulation X, also known as RESPA

    ECD, I am NOT talking about the new GFE. I am talking specifically about where in the statute it tells originators all across the united states what their max fees are. Please. I’ll patiently wait while you read the entire statute. By the way I have never met a loan originator who has taken the time to read the entire statute save for ONE LO who works in Oklahoma. Maybe you’ll be my second.

    Lawyers read the entire thing. Compliance people read it. Educators read it. LOs? Not so much.

    Here is Regulation Z of TILA

    Beyond Section 32 HOEPA loans, stick only with residential mortgage loans….not credit cards. Please cite exactly where it tells loan originators what their max fees are.

  28. ECD says “I still don’t know why you feels that consumers are up in arms about originator compensation. I have done hundreds of loans, and THEY DON’T CARE. The borrowers that are left are high FICO, high asset, high income people. You do NOT get anything by them. They want the best rate, for the best costs, and to close quickly.”

    This is a contradiction. Consumers don’t care….but then they do care.

    One hundred percent of the time the folks who claim consumers don’t care about an LO’s hidden compensation are people who would not be able to get away with it if the consumer were told the truth.

    Yes today is a very different market compared to the heydays of 2006.

    These new laws are a direct result of what was happening at the height of the bubble and not a reflection of the 2010 market.

    Politicians and regulators alike are under the gun to come up with solutions so we never have to live through another meltdown.

    ECD, what have you personally done in your own marketplace to be sure the ethical problems of the past don’t happen again?

    If the loan originators (no matter where they work) think we don’t need any more laws and this is all behind them, they’re going to be sorely dissapointed as more laws/amendments like this continue to be introduced.

    What was once an ethical dilema (hmm how much can I earn in ysp off this client) is now a law (the new GFE and the 2010 changes to respa) what is still an ethical dilemma (hmmm how much can a banker LO earn in overage without having to disclose on the gfe) will no longer be a choice but law if this amendment is passed.

    Don’t like the amendment? Then what are you personally doing to help all the originators in your market area make professional ethical choices?

    That’s what a mature (i’m not talking emotional maturity, I’m talking about length of time as a professional) group of professionals doeS: They help each other, even if we’re competitors. Think doctors, lawyers, accountants, paralegals.

    Loan originators are an emerging profession without a code of ethics.

    Solve this problem and the government gets off our backs.

    THIS is what I do for the industry, ECD.

    What have you done lately?

    Thank you for your participation. I look forward to reading your response. My apologies for not being able to respond instantly to your comments.

  29. “Loan originators are an emerging profession without a code of ethics.”

    For the first time what you do makes sense to me. Actually this thread has made a lot of sense.

  30. Do you know anything regarding loan officers being paid overtime? I just heard about it yesterday from HR. Anything over 40 hrs is OT and in this market, not being authorized!

  31. Hi Lynda,

    I have not heard anything about overtime pay and LOs. Typically, LOs are exempt from claiming over time but I am not a labor attorney. If I hear anything new, I will post it here or email you directly.

  32. Hi ECD,

    I prefer inline comments instead of replying to a specific comment. I get dizzy trying to figure out all the dates so just put the newest comment at the bottom, pls.

    ECD says, “She even admits that she never originated loans. Yet she can wax poetic about how great this law is for consumers, when I doubt she even talks to many borrowers. I talk to scores of borrowers every single day. I know what they want, and this law takes away their choice.”

    I never said that. Positions I’ve held in the mortgage lending industry over the past 25 years include processing underwriting, originating, compliance, educator, founder, owner.

    I talk with borrowers all the time.

    The amendment (which is not yet law) does not take away consumer choice to roll their closing costs into their loan. It does take away the choice of the loan originator to put a consumer into a worse off loan program in order to earn higher compensation. I think if we intereviewed 100 consumers they’d say that’s a good idea.

    ECD says “She even said herself…1% origination is what is coming back.”

    I’m predicting that once LO compensation (back end compensation on bank LOs like overage that’s hidden today) becomes fully transparent, competition will force the LO fee down to more like 2 percent. 1 percent for the broker and 1 percent for the lender. I could be wrong. We’ll see.

    ECD says “Don’t give me that song and dance about “well now the customer will be informed, etc etc.

  33. It does take away the choice of the loan originator to put a consumer into a worse off loan program in order to earn higher compensation. I think if we intereviewed 100 consumers they’d say that’s a good idea.

    That is a completely misguided statement. A “worse off” loan program? That implies putting someone into an ARM when they wanted a fixed. What you mean is a higher rate to pay for costs. I offer my customers options. You want a par rate, well it costs you at least 1% origination plus 3rd party fees. The borrower’s I deal with are very anti-upfront fees. The higher rate option is best for all involved in many occasions. I would say maybe 10% of the loans I do have any upfront origination if that. So now you are championing an amendment that takes away the customer’s choice.

    Again, you are talking about things that happened 5+ years ago. With licensing, new GFE rules, MDIA, HVCC, etc we are regulated enough.

    “Professionals such as doctors, lawyers, CPAs, nurse practitioners, paralegals, etc. have to do way more than just hand their clients some forms. They have to make sure the client fully understands what he/she is consenting to.” What in the world are you talking about? They NEVER have to disclose how much they make on any form. They certainly don’t have to explain anything. They just bill you arbitrarily. Especially doctors. You get checked out, and pay a co-pay. Do you actually know or are they required to disclose how much they make on an office visit or the like? No way. This point is WAYYY off base Jillayne. Yes the forms that spell out their note rate, loan term and the like are enough. The regulation we have in place I agree with. I like having to be licensed, and it raises our barrier to entry. However we have ENOUGH regulation, and this bill is not a good idea.

  34. Overtime is becoming an issue. Most LOs don’t care about overtime because it is a 100% commission job and you know it going in. However, it is an issue at the boileroom type places where LOs are chained to a desk dialing for dollars and these LOs typically do not have a book of business that they draw from. Many may work regular hours and not earn any money and those are the ones who are filing lawsuits. If I recall, the legal rulings say LOs get overtime and don’t consider them management. However, this is also at odds with how a good number of LOs earn a living so it still needs to be resolved.

    Jillayne: You are avoiding the question as to why LO compensation matters. While most don’t care about disclosing compensation, the reality is that it still does not matter to consumers and it confuses the hell out of them. You would know this if you were actually an originator.

    Consumers are not stupid. They only care about their cost which means the final rate and fees. PERIOD. All the other disclosure around LO compensation just adds confusion. Consumers absolutely do not give a bucket of hamster piss about YSP/SRP, when it is disclosed, and what it means. Rarely ever does a consumer ever ask what I am making. Even when I tell them, the conversation goes right back to their rate and fees because that is what they are paying every month.

    If you have two loans. One at 5% and one at 5.25%. Both have $1000 in lender fees. 99.9% of consumers are going to pick the 5% loan. I will bet you a steak dinner that no consumer would care one bit if the 5% LO were making $15,000 in YSP while the 5.25% LO were only making say $5000. It absolutely is irrelvant to the consumer and their choice for the best deal. LO compensation is NOT the same across banks nor is it linear, therfore, consumers cannot use it to compare loans so why is it even being disclosed?

    Do your customers ever ask you what your profit margin’s are on your training business? If you are offering a training class for $5k and your competition is offering the same class at $6k? Which is the better deal? What if you are netting $4k in profit while your competitor is only netting $1k? Do you think your clients would care???

  35. Russ How about in that same scenario, the LO says to the consumer, “but on this transaction I’m making 15,0000 and the other one I’m making $5,000.”

    I will bet you a salmon dinner that 100 percent of consumers would question the value of paying the originator $15K for working on that file for how many hours? 5 hours…..15 hours? They would question why the fee is so high and ask for more information. LOs have a vested interest in continuing to hold onto the irrational belief that consumers do not care about hidden LO compensation

    That fee would be subject to challenge if the consumer was not well served and consumers today (at least in the greater Seattle market) are far more leery of all loan originator compensation today because of the meltdown.

    • Jillayne:

      Again, why would a client care how much the LO is making if they are getting the deal they want?

      It is very clear that you have never spent time in the trenches originating and getting loans to the closing table. When I have those conversations with my clients it again always goes back to their rate and fees because what the LO is making is absolutely irrelevant. Your comment smacks of jealousy. Anyone could say the same thing about your consulting business. Are you really worth X for reading a few slides at your class? On the surface, it looks easy being a LO when you see big numbers thrown around, but there is a reason most LOs wash out of the business. Most can’t deal with the enormous stress of keeping the deals together along with actually generating business.

      Where I do agree with you is that LOs should be looking out for their client’s best interest. I also have a problem with LOs who may steer borrowers based on a commission payout as we saw happening with the Pay Option Arms. However, you do realize that FHA is the highest paying loan product, right?

      Borrowers today are way too savvy and there is way too much information for an LO to steer someone into a loan simply because of the commission. In fact, most loans pay roughly same other than FHA/VA.

      You cannot compare how attorneys and Doctors disclose their fees because the nature of the service and product is different. Mortgage lenders essentially are just selling their final rate with a smattering of service and advice. Ultimately what the consumer is buying is money at X percent. The wholesale price of that money is totally irrelevant to the transaction for the consumer. The mortgage itself is very tangible. On the other hand, an attorney is essentially just selling his knowledge and expertise and the end result in most cases is intangible. There is no wholesale market for attorney knowledge. The same with doctors.

      What has been advocated for LOs is essentially disclosing profit margins. YSP and SRP are nothing more than a fancy way to profit margin. Wholesale Plus YSP/SRP = Retail interest rate. You are saying that every business should have to disclose their wholesale prices and then what their profit margin is on each good or service.

  36. ECD I keep saying over and over again the Merkley amendment, at least from my interpretation, does not take away a consumer’s choice to roll in costs on a refinance.

    LOs would not be able to bump up compensation if the consumer makes that choice.

    THAT would go away.

    Things that happened five years ago (isuch as predatory lending) are still on the minds of regulators, politicians and the hundreds of thousands of consumers who are unemployed. You and I agree that the lending industry is regulated enough.

    Unfortunately, many others do not agree with you and I which is why we are going to continue to see state and federal laws introduced for quite some time.

  37. ECD,

    I’m talking about an invasive medical procedure. Doctors absolutely positively do have to disclose their compensation and all the possible consequences of the procedure.

    No, they dont’ do this for a routine office visit.

    Lawyers do the same thing when we spend money retaining their services for legal help.

    Someday loan originators will do this too. Doctors and lawyers can’t simply just hand a patient or client a set of forms and collect their fee. They must make sure their patient/client fully understands what he/she is consenting to.

    ….You need some background. Here you go:

    Until more sophisticated informed consent processes are in place for loan originators, the government will continue to clamp down on loan originators. I want to work to get the government off our backs but in order to do that, LOs need to be more transparent.

    Russ I’m talking to you, too.

    Guys I’m heading out to teach an afternoon ethics class to a group of……hold your breath…..”Realtors.” I’ll be able to comment again later. Hope all our readers have a great afternoon.

  38. Mortgage Lending in 2012:

    Bank: “Hello, welcome to 2Big2Fail Bank. My name is Sam, can I help you?”
    Customer: “Yes, Sam, I’m interested in refinancing my loan.”
    Bank: “Sure, the closing costs will be $5000, and the rate is 8.875%.”
    Customer: “That’s too high on points and rate. I’m going to take my business elsewhere.”
    Bank: “Sorry you feel that way. Feel free to call the other 3 banks. Have a nice day.”

  39. Hi Russ,

    I spent 10 years in the business getting loans from origination to escrow. No Nietzsche-type resentment here. I totally love what i do and am happy with my income.

    Russ says “Mortgage lenders essentially are just selling their final rate with a smattering of service and advice.”

    Which is why people are wondering about that profit margin if all LOs do is sell a rate with some service and advice thrown in.

    Selling rates is cheap. Banks hire entry level people to do this and pay them poorly.

    The loan originators who have lived through 2008 and are still in the business today are a much higher caliber of LOs than the third party broker LOs of 2006.

    I’d like LOs to stop thinking of themselves as retail salesmen (“don’t ask me about my wholesale price. u don’t need to know that”) and instead start seeing their role as more of an advocate, fiduciary, counselor, is when the value of an LO’s compensation will begin to rise again.

    Some LOs have always done this and don’t need to make the transition.

    Others will have to be dragged kicking and screaming.

    A fiduciary is worth more to a consumer. An LOs duties will be higher but then so will the compensation.

    Realize that fiduciaries owe a high duty of honesty to their client to fully disclose compensation. This includes anything that may be “hidden” from your client.

    • Jillayne. You know what they say. Those that can do and those that can’t teach. Just messing with you, I like you, but I also like arguing with you.

      The mortgage is tangible because that is what they pay each month. They see it when they write their check to pay the mortgage. Why don’t you conduct a little experiment? Get consumers to call two mortgage lenders, but only shop based on what the LO earns, not the final interest rate and costs. I will guarantee that the consumer will quickly tell you they don’t give a flip what the LO is earning if their rate at LO #1 is not as good as the rate at LO #2, even if technically they are paying LO #1 a lower commission.

      This is exactly why upfront mortgage brokering never caught on in big numbers. Guaranteeing the LO’s compensation DOES NOT mean the consumer is getting the best deal. I don’t see what is so hard to understand about this. When I first got into the business I thought I was going to be an upfront LO, but no consumers cared. Deer in headlights trying to explain the difference. After all the talk about fiduciary, referrals, disclosing YSP/SRP, blah, blah…. it all came back to “But what’s your rate?”

      The terms of the loan are the terms of the loan regardless of all the other stuff that goes on behind the scenes related to the wholesale capital markets. Consumers aren’t dumb and they know this. They pay x % on y size of loan. Period. What the LO makes doesn’t change that one bit.

    • I actually think that would be a good idea, Owl Tree… I’ve written about that here at RCG and recently did a poll at Mortgage Porter…I was surprised that most folks would rather pay points (percentage of the loan amount); followed by hourly with flat fee last.

  40. This was a great thread, and Rhonda, in my opinion some of the comments here should show you the pool of Loan Originators looks like to the public. I think you’re an exception, along with others, like Scott Cunningham at Primewest Financial at 206-623-loan (5626). There again I know, and have known since the beginning of my career, other mortgage reps, companies, lenders, who with glee piled up as much cash as they could in the last 10 years.

    What’s real interesting is that no one has pointed out the basis of this type of legislation. Even though ECD originally thought he, I’m assuming it’s a he because of the aggressive tone, could link back to he never made to connection to where mortgage lending is going.

    Zillow, in my opinion, and according to the lawsuits that were proposed, is a mortgage lending site. It shows you a value, and lenders can make an offer for you to refinance. All loans, and mortgages, are much better suited to being internet based than Real Estate. In selling homes you have to at the very least show the home. I have made offers on properties I have never seen, like the one in Florida, but over the years I have found it a good idea to at least have a look.

    Mortgages are all numbers. You can sell numbers on line. You can make the whole deal, on line. Escrow agents have been proving that for years now.

    • David,

      What is your point? It is clear that you have a vendetta against mortgage loan officers, because nothing you have said has been pertinent to the issue at hand and has been vitriolic from the start. I admit I was harsh at the start, but I respect Jillayne’s responses to my queries, and I agree with her on many of her points. I apologize to her. However, your responses are rude, way out of left field, and it shows that have no idea what the reality of mortgage lending is in 2010. The stories you mentioned are all based on things that happened years ago. The vast majority of LOs are out of the industry due to licensing, new regulations, etc. You also have no idea about any of the regulations already in place. I welcome licensing and raising our barrier to entry. However, this law will take away a large portion of borrower choice, and it will hurt business. I know where lending has gone since 2008 and where we are going, because I am still here everyday originating loans in THIS environment. You have no idea what you are talking about.

      How would you react if they limited how much you can make on your deals? I assume you are a realtor/real estate investor. What if they capped what you can make on a transaction? I bet you would react in much the same way.

      Zillow is not a lending site. Companies buy space on the website and post rate information, and that is how the site makes money. Realtors also advertise on the site. That is how it makes money.

      What is your point about mortgages are all numbers? DUH! Yes that is true. So you are saying that a borrower can make their own deal without loan officers? Really? Tell me how.

      Thanks for the free advertising, but what was your goal in posting my company’s website? To try and bash us? We have an A+ rating with the BBB, and highly rated with every major investor. If you have a problem with me, stick with me. You can call me at 877-277-0597. I have nothing to hide.

      Good day.

  41. The point is that legislation is put in place by special interest, lobbyists. Yes many LOs will be put out of business.

    Just as banks pushed for a change in the Bankruptcy Laws before the market crash, they are pushing for Loan Origination changes. Big banks win.

    You linked to a web based business model for home mortgages. It generates business. My friend Scott Cunningham at Primewest Financial 206-632-loan (5626) has avoided on line presence because he wants to know who he does business with and works entirely by referral.

    Banks, big banks, will cut out competition by legislation. It’s an old trick, but sites like Zillow can adapt well to doing online mortgage brokerage. That would be much easier than doing online Real Estate Brokerage.

  42. David,

    OK I’m picking up what you’re putting down now. Finally, something we agree on! I agree that the banks could be behind this, but the legislation is very vague. As it stands now YSP (broker overage) has to be disclosed. However SRP (bank overage) doesn’t. Why would the banks want this kind of disclosure? They have already gotten the broker side to get licensed, fully disclose, etc. I have been wondering this too. Who are the “powers that be” behind this. Doesn’t seem like the banks would want this kind of bill.

    Anyway, good day all.


  43. Why did it take you so long to understand that? This is what I have been trying to get you to see!! This is why LO compensation DOES NOT MATTER. As long as the consumer is getting is the rate and fees that they believe to be the lowest available to them in a competitive market, what the LO makes in compensation is totally irrelevant.

    No one is arguing that LOs shouldn’t be held to a higher standard. However, consumers at the end of the day vote with their wallet. As it stands now, consumers do not put a premium on working with high quality loan officers by in large. Consumers only care what they are paying each month on the mortgage. They don’t care if the LO is making $15k on their deal or $5. They want to know what their mortgage payment is going to be. PERIOD.

    I am more qualified and professional than 99.9% of the loan officers in the business. I personally close more loans every year by myself than some entire brokerages. I have an MBA from arguably the best business school in the country. I come from a prestigious management consulting background. I earn a six figure income just off referrals from past clients alone every year without marketing to a single Realtor. I have A LOT to lose by not treating my clients right. However, at the end of the day, even though I have much stronger relationships with my client base than a typical LO, I can tell you that I still get rate shopped to death against LOs who two weeks ago were selling cell phones at the mall and acai berries as a side hustle. In theory, I should be able to charge more but the real world doesn’t work that way when it comes to mortgages.

    I think you heart is in the right place, but I do believe you are sorely misguided in regards to consumer behavior when it comes to mortgages.

  44. Hi Russ,

    It will take a long time….perhaps another decade, but the industry needs to re-train consumers to shop us based on something other than rates and fees.

    There will always be the customer who will only make their decision based on money. Nothing wrong with being the lowest cost lawyer or lowest cost CPA. It’s a business model.

    If the industry doesn’t chose to re-educate the general public…..then you are absolutely positively correct!……and the politicians are going to continue to chip away at hidden LO compensation.

    • Jillayne:

      The vast majority of consumers will never shop for mortgages based on anything except rate and fees. There are always a few cases, but you desires are far from reality.

      The simple fact is the mortgage terms are consumers largest expense. They see it monthly when they write that big ass check to the bank. This simple reason is why consumers spend so much time obsessing over their interest rate. It is their most visible expense. Yes, it is very irrational, but it is the reality and nothing will ever change that as long as consumers are paying mortgages each month.

      Other professions do not have such a visible impact on consumers bottomline. You aren’t paying an attorney every month. Nor your accountant. Nor your Doctor. Their services are also not defined at the end of the day either by an interest rate and fees. While the service aspects may be the same, the end results are not. As such, consumers can’t get away from worrying about the rate/term versus the service and knowledge component when it comes to their mortgage.

  45. I have been in the mortgage banking industry since 1983 and these new changes are hurting the consumer. The HVCC for appraisals is adding $150 to management companies which are owned by the banks and reducing appraiser fees by that amount. I went to work for a national bank last month for 2 weeks. The 30 year fixed rate they were quoting at par was 5.25% and they only charge a $400 fee plus title changes. I could have done the same loan as a mortgage broker and the rate would have been 4.875 and I could have paid the lender fees and still made 1.25% on the loan. Who wins ? Everyone. I make more money the consumer gets a lower rate. The banks do not have to show their true cost on the new GFE. If they did the 5.25% rate would have been 103.875 and they are paying the loan officer .50 basis points. Their loan officers do not even have to be licensed. That is why the big banks have made record profits the last six months. The big banks win again and small businessman and consumer get screwed.

  46. Ebe if the Merkley amendment makes it all the way through, those bank LOs would have to disclose their overage….but, just like ECD pointed out….the bank’s SRP would not be disclosed up front.

    This is why I STILL Firmly believe that broker LO numbers will continue to shrink…..and then they will gradually rise once again! The consumer is better served by a broker who can work as a fiduciary, on behalf of their client, with full disclosure.

    Now Russ is ALSO correct in that there will always be rate/fee shoppers and if the bank underquotes they’re going to get their retail market share.

  47. How is it you can get the consumer the lower rate? Why you, why are you so special? Why is the consumer subjected to all of this game playing?

    The answer is in the packaging of the loans for resale. Banks want more in interest so when the pie is divided there is more to go around. They want you to be the friendly face that gets the better borrower. They want the gold plated borrower who is smart enough to cut the “really” good deal, with you.

    The more loans the more packages.

    I’m sorry you are the friendly face that is getting people those really good special deals, but that’s all over. Like the ECD guy says that was 5 years ago. Any paper you create today is based on an over priced asset. The housing unit you are making a loan on is over priced.

    Look at the Financial markets today, and tomorrow. The economy will continue to contract. Those loans you made yesterday will be fodder for default in three to six months.

    Here’s the sad part, those smart people who got the “really” special deals are probably the ones with the higher down payment, or paid off consumer credit before they closed. These are the people who depleted cash to make a purchase. These are also the good people who will pay longer to preserve the all important FICO score.

    The system will have to be changed. The financial markets need extreme regulation. Stopping you from making loans is just one step. The government won’t ban it, that would be unAmerican, but they can make it much, much more difficult for bulk transfers of cash.

    • Jillayne, slightly off topic…but gets a bee in my bonnet… what about campaign reform? Many of these politicians, including Barney Frank, pushed for many of the things that went wrong in mortgage and contributed to the bubble… yet I’m just hearing a bunch of short term memories & chest pounding from our elected officials.

      I wish that with all the reform that’s going on, they would have started with themselves…guess I’m a dreamer!

  48. I think that Germany stopped short selling, and the markets are reacting. I also think that while Rhonda prepares Friday’s rates that we will see some 3%s to keep people in the game a little longer.

    Banks, big banks, are, in my opinion, pushing for reforms before they are forced out of business.

  49. David,

    You obviously don’t have any idea how origination channels and pricing works. Yes Ebe is absolutely right. Retail banks do have higher rates. Nothing special about it. I work for a correspondent lender, and we have warehouse lines with some banks. The other banks we broker out. We get wholesale pricing, and yes it is much better. Our correspondent pricing is even better.

    You can go to a Bank of America branch, and I can show you my wholesale Bank of America rate sheet, and I can slay anything that the branch puts out. Banks are in the wholesale channel and offer premium pricing because they don’t have any overhead to fund loans in that channel. They just cut the check. Which is another question as to why they would want to eliminate that channel of business when it is generally more profitable due to no origination employee overhead.

  50. Good Gracious, of course I understand how it works. Over head is the interesting term.

    What over head? Numbers on a paper that gets signed by three parties is hardly over head.

    The Loan Originators are saying people shop by rates. Why not publish the daily, hourly, rates online, and let the consumer chose when to buy?

    The real question is the source of the funds that are being lent. Why is the consumer paying middle man mark up to borrow money?

    Even more important is the investment of the spreads in the Financial Markets. That’s what’s in upheaval today. Germany is an industrial, manufacturing economy. They are the good guys who are being hammered today. Shanghai, and Hong Kong are having a field day trading on the misery.

    The only over head in mortgages is keeping the illusion. We are a long ways away from lending money from bank deposits. You guys are transferring million, and billions of dollars of paper profits into loans secured by family homes. You want mom, dad, and the kids to pay for reckless profiteering by massive Institutional Investment Trading.

    Like I say, here in the United States we have protections, like Bankruptcy. Other countries will have a less orderly reaction.

    • David:

      If you think there is no overhead in mortgage lending your are absolutely clueless what goes on behind the scenes. You have loan officers, processors, underwriters, compliance, closing staff, post closing staff, secondary marketing staff, marketing staff, appraisal/amc staff, HR staff, Payroll & Accounting, ec.

      The problem is that mortgage lending is very complex. It would be nice if you could just log on line, enter a social security # and get a loan, but you gotta put the crack pipe down.

      Yes, consumers shop by rate. The problem is that getting a loan is more than a rate and 90% of consumers aren’t nearly as qualified as they think they are which makes it difficult to just simpy post rates online and have consumers pick what they want. Consumers have no freaking clue what they qualify for which is also part of the conundrum. On one hand, we have the final terms which is what is important to the consumer and what they tend to shop for. But on the other hand, you have the realities of the real estate transaction process which is much more complex than simply the consumer shopping for a mortgage rate.

      If mortgage lending ever goes back to Stated loan products, I can see technology driving out a lot of LOs. The problem is that people’s inherent propensity to commit fraud when dealing with large sums of money will prevent mortgages from ever becoming simple.

  51. I understand completely that you are talking about your business. You are talking about the millions of good paying jobs that these loan products create. God bless you. I also understand that a lot of good people are in the mortgage business with motivations other than to get rich quick.

    I’m asking you to look at where the money you make loans with comes from. That’s where it gets complicated.

    Housing units are still way over priced.

  52. That gets into monetary theory. Banks do not actually lend the money they have from deposits. It is the basis for fractional reserve banking, which is what the Federal Reserve system is.

  53. Exactly. Is it fair for home owners to be paying the ultimate price for high risk Institutional Investment speculation? Is that turning out to be a good thing?

  54. so now that we are mandating max income limits in one industry, why don’t we make it a law that attorneys, regardless of education or self promotion, regardless of success in court, that they cannot charge more than 20 dollars an hour in fees? if they win the case, then we can negotiate a “bonus”. I want a law that says all elected officials work for $50,000 per year and they cannot keep any campaign money that is not used for the campaign! Let’s see, maybe we can get more Senators, who nothing about certain businesses, create rules and regs to impact those businesses that they know little about! Give me a break. Maybe that loser Barney Frank can educate me on dieting and health? that’s rich! How much money do make a week? A year? How much is the mark up on a new car when I choose to buy? why does the finance mgr at a car dealer get paid a huge wage for putting people into higher rate car loans? this is america. You can’t rip people off and cant’t tell people how much they should earn. The market has taken care of most of the individuals, lenders and Wall street firms who created the incredibly lucrative loan programs. The mtg industry has plenty of regulation, why not start enforcing the laws that are already in place instead of pissing away more tax payer dollars creating more. This law will punish the consumer.

  55. Hi Josh,

    Loan originators can still earn a good living. The proposed law would require all LOs no matter where they work to disclose compensation. right now just broker LOs have to do that. Broker LOs have been screaming for a level playing field for years. This is a step in that direction.

    Arguably, purchasing a car loan is radically different from purchasing a mortgage.

    I do agree with you that it’s terribly hard for federal regulators to regulate the existing laws governing mortgage lending; much as been left up to state regulators.

    The proposed law aims to help consumers. How do you believe it will hurt consumers? Thanks for stopping by RCG.

  56. This is the most fascinating Real Estate post I’ve read on the internet. Now you have Josh as another great example of what the public has had to put up with in home mortgages.

    Here’s the deal guys, the government is giving away money to you guys, actually your handlers, as a matter of public trust. We all give you cheap money. It’s like we are giving free hamburger to McDonald’s. We give it to you. Here in the United States of America the government is We the People.

    The public trust has been broken by back room dealings in your industry. Now each of you have come here to claim, you didn’t know, and you want things to go back to the way they were. You want to make money, by creating contracts, with money we give you, and collect a fee for that. You, your industry, then sells our money, our contracts, our promises to pay to investors for more profits, then insure the whole mess for even more profits.

    It’s our money, not yours. Once you step up to the plate with your money you can come whine to me.

  57. This is not your money we are talking about. You have no clue how the mortgage market works. An FHA loan is insured by HUD and the security is sold on the Secondary Market in Pools. I have originated and sold mortgages for almost 30 years. The Govt does not loan money. Maybe they buy the security but that is on the secondary market. In the 1980’s the Japanese were the largest buyer of mortgage loans. Institutional investors, Foreign Governments, the US Government, and Unions etc buy the Pools (BONDS).
    When a realtor sells a home should they be liable for the mortgage for the next 5 years? Should they have some skin in the game? Should the Federal Regulators put a cap on their commission? I originate a $200,000 loan and make about $2000 and have all kinds of first payment default clauses, One year/Five Year default clause and so one. The realtor makes $14,000 in commission and at the closing they walk away with no liability.

  58. I have never originated a Sub Prime loan in my life nor have I ever underwritten one. Those people are gone. Those lenders are gone. Look at the home Builders They build the home, use their own appraisers, their mortgage company and their title company. You must use them if you want the free basement or the low rate. How is that not a violation of RESPA? The Supreme Court just ruled it is ok. How is that fair? At a recent FHA underwriting seminar the Atlanta HUD office said 55% of the regions foreclosures were on homes less than 5 years old. What does that tell you? The builders put people in homes they could not afford.
    Congress forced the Banks to loan money to low income households that could not pay also. Large companies where doing 125% second mortgages. How stupid were the home owners but how dumb were the investors that were buying these loans on the secondary market? The Feds should have stepped in and made some Federal Regulation that the maximum CLTV is 95%.
    All we are asking for is a level playing field. Make the banks disclose their fess the same way we have to. Make the banks use true management companies to order appraisals not ones they own. Make the banks modify the loans that are these crazy option arms, or underwater that are not behind on their payments exactly the way the tarp bill is written. The banks have modified only 5-7% of the eligible consumers. Why is that? Is that fair?

  59. I cannot wait until congress passes laws to regulate how much a school teacher makes, policemen, firefighters, life guards, 12 year old newspaper carrier, the boy down the street mowing your yard, your daughter and her baby sitting job. If they make it law that total fess cannot be more that 3% of the loan amount. Who will do a $50,000 loan? Title Insurance, Appraisal fee, Credit report, recording fess, closing fees, processing, flood certs, survey report, pest inspection. Those fees all add up to more than $1,500. Who will do the loan? No one because the banks, mortgage banker cannot make a profit. They cannot even pay for the cost to originate the loan. Who loses? The consumer.
    Be Careful what you wish for!!!!!

  60. “a school teacher makes, policemen, firefighters, life guards, 12 year old newspaper carrier, the boy down the street mowing your yard, your daughter and her baby sitting job.”

    “You have no clue how the mortgage market works.”

    “The Govt does not loan money. Maybe they buy the security but that is on the secondary market.”

    “I have never originated a Sub Prime loan in my life nor have I ever underwritten one.”

    A mortgage rep is a far cry from a firefighter, life guard, police or 12 year old. Most people selling mortgages know the business. What scares me is that you have been in the business for thirty years. How many loans would that be?

    Well the mortgage business has changed a lot. To be fair, all business has changed a lot.

    Wait a minute, haven’t I explained this all before?

    The bottom line is that you are now out of business. The gubmit has nothing to do with putting you out of business, you are being regulated. You have probably generated thousands of loans over these past thirty years, but the ones you have done lately have to be unwound.

    I don’t understand why it’s so hard to understand. People refinancing, or taking out new loans are agreeing to pay more for an asset that is going down in value.

    I haven’t done the math yet, but am pretty close to figuring today’s prices will fall another 20% to 30% depending on the part of the country or where they are in the process of settling into actual value. Value in line with income.

    There are so many things at play it would be hard to sort it out here, but let’s just use income. Will wages deflate? Absolutely. Unemployment means people will be working for less. Your good job will be the second to go because Ray will list your property for $500. A corporate lending source will do a loan for $250. Why would they care?

    It’s 2010 and we are smack dab in the middle of the New World Order Bush the First promised us, and Bush II put in place.

  61. Hi Ebe,

    Purchasing a mortgage loan is arguably a much more serious purchase than a buying a newspaper. The people who will do the small loan amounts are the companies that will be able to figure out how to be the most efficient with their resources. The small business owner is in a perfect position to win because typically larger corporations are much slower to react to changes in the marketplace and they have so much overhead….the only way a large corp will be able to compete is on volume.

  62. Hi Ebe,

    There is a provision in RESPA that allows a builder to offer incentives to customers who use the builder’s affiliated lender. This was challenged under the latest changes to RESPA that were approved in 2009. However, ultimately the builder’s ability to do this remaines unchanged.

    The builder cannot, however, charge the homebuyer more for the home if the homebuyer chooses a different lender.

    • Jillayne how is:

      “The builder cannot, however, charge the homebuyer more for the home if the homebuyer chooses a different lender.”

      different than a builder offering price incentives for working with their lender?

  63. Hi Ebe,

    A real estate agent does not escape all liability after the close of a real estate transaction. The licensed agent would be subject to the laws of agency in each state as well as federal laws governing the practice of real estate sales. Most all Realtors I know carry errors and omission insurance.

  64. Jillayne,

    After taking part in your classes from time to time over the years and reading posts like these
    I believe that it would make you very happy to see all LOs out of work.

    And Ebe,

    I have had my comments pulled off here if and when they do not fit the opinion of the moderator.

    This website does not looking for honest dialog from both sides.

    • This website does not looking for honest dialog from both sides.”

      Chris, I can only speak for myself and the posts I author–its rare when I have to delete a comment…its the last thing I (and I’m sure anybody) wants to do. I welcome an honest dialogue. Some comments do wind up in spam and often first time comments wind up in moderation until they can be “fished out”.

      I have exercised my right to delete a comment if it’s too spammy, self-promoting or a mean spirited attack.

      • I think that is what I said?? If your views and comments do not aling with the powers that be on this site, than you will/may have your blog entry removed.

        Thanks for backing me up.

        • I think can vary by author, is what I’m saying… but I don’t think anyone here deletes just because it doesn’t fit the opinion… but for example, Jillayne might decide to delete my comment because it’s totally off subject (sorry Jillayne, my bad)…

          Chris, I think you’ve brought up a great subject that would be worthy of a post… “when is a comment deleted” …I’d like to see the owner of site, Dustin, write something like this. It’s his site and his overall “rules”… I’m just a contributor/author with some control over my content/posts.

          • Chris I’ve never deleted any of your comments. When someone is leaving a comment for the first time, I am almost positive it is put into the “pending” bin until someone approves it. The other types of comments that get flagged by the system as spam are comments with lots of outbound links and repeat comments that look the same.

  65. Builders used semantics to get around the affiliated business arrangement RESPA violation. They can’t technically charge more for the house, but they can refuse to offer incentives on upgrades, etc which is essentially they same thing as charging more.

    Jillayne: Mortgage lenders will not be able to profitably originate small loans with that 3% restriction. You do realize it cost just as much to do a $100k loan as it does a $1 million loan in terms of overhead? In fact, it cost more to do small loans in many cases because small loan borrowers tend to have more issues that need resolving.

    Also, how is the law going to help consumers? Everytime the government starts messing around with stuff it winds up hurting consumers in the long run. All these laws have done is wind up costing the consumer more money. As I pointed out above on multiple occassions, LO compensation is of no importance to consumers and just muddies the waters. The law does nothing to help consumers other than sound like socialist propaganda – we are preventing LOs from making too much money! Sounds good until someone decides Continuing Ed instructors make too much money.

  66. Russ the law will help consumers who were victimized by predatory lenders. Obviously the industry was not in any way interested in self-regulating the out of control behavior of their mortgage salepeople during the bubble. The politicians are under pressure from consumer advocacy groups to put measures in place so that mortgage salespeople everywhere, no matter where they work, will not be able to take advantage of people.

    Don’t like it? Then what did you personally do to stop the masses of mortgage salespeople everywhere, in all states all over the US from taking advantage of people?

    My guess is nothing.

    and now the loan originators who are left are pissed off that the government is likely going to pass the reform bill with this amendment in place.

    No one anywhere should be surprised that this will probably pass!

    The government will continue onward. I don’t think they’re done yet with clamping down on the industry.

    In terms of costs, Russ, I am one hundred percent certain that one of your competitors is going to figure out how to do those small loans and make a profit. In fact someone is probably writing a business plan right now. (No, it’s not me.)

  67. Hi Chris,

    So you think I’d like to see all loan originators go away? If that were true, then I’d be hoping for the destruction of 50 percent of my income. Why would I logically want something that would harm myself?

    No. I love working with loan originators. They teach me things and are a never ending source of fun and entertainment. In fact, I taught a 3-day class a few months ago that was the best teaching experience of my life; about 28 LOs in that class.

    Here’s who I’d like to see leave the industry and never return: People (okay, sure loan originators but sometimes these people hold management or ownership positions) who have already decided to violate as many state and federal laws as they can get away with, who have no intention of ever changing, will pay the fee if they get caught and then just go back to create new ways of screwing people over without getting caught. Your garden-variety sociopath is happy at work every day in the mortgage lending industry because we will never have enough regulators to oversee everyone/every deal.

    These people move from one company to the next. broker, banker, consumer finance company, back to broker, then banker, and so on. You can easily track them in the public records system because they’re typically caught by the regulators at least once.

    I don’t understand WHY our regulators continue to let people originate loans who have already shown disregard for mortgage lending laws. They must have been represented by a very good attorney.

    Those people should go.

    The rest (the majority) can be taught.

    THE MERKLEY AMENDMENT IS PROBABLY GOING TO PASS BECAUSE OF THE PEOPLE I MENTION ABOVE. Laws like the Merkley amendment were written because of those people, most of whom are no longer in the industry BUT READERS, SOME STILL REMAIN.

    Yet the industry continues to believe getting rid of the sociopath’s is somebody else’s problem.

    • Jillayne,
      It makes me sick that the people putting new laws and regulations into all facets of our personal and professional lives are (outside of state penitentiaries) the worst of the worst kind of unsavory miscreant.

      If those are the people you trust to “take care” of the consumer then we are in trouble.

      And you do take most of your shots at the LOs and seem to leave realtors, appraisers and the general public out of the sightline of your finger when pointed.

  68. Hi Chris,

    I have taken plenty of shots at Realtors in many blog posts. I don’t interact with appraisers enough to form strong opinions on either side of the issues.

    The general public knows far less about the inner workings of the mortgage machine. Yes the average random consumer should understand what he/she is signing. The winds of change are blowing in favor of more consumer protection and more duty/responsibility on the shoulders of loan originators to make sure the consumer understands what he/she is consenting to. Very slowly, we are moving loan originators away from being like retail salespeople and more like a professional with higher duties owed to clients.

  69. The winds of change have added more money to the loans and less disclosure. The HVCC has added an average of $110 to each and every appraisal. My 76 year father who is a FANNIE MAE Freddie MAC review appraiser receives less money per assignment and the consumer is charged more.
    The new GFE is a joke because the customer does not need to sign it and the banks do not have disclose their yield or SRP. They are making the owners policy on Purchases to be included in the GFE even if they are being paid by the seller (99% of the time). You cannot even show a seller credit.

    As for long officers . We need 20 hours continuing education plus take a state test, national test, FBI background check, finger prints and a credit check. In 2006 I walked away from lending because I was upse at all the fraud going on. Last week they selling cars and this week they were doing loans. I originated between $35,000,000 to $75,000,000 per year for many years. All A paper. 99% of the Bad guys are gone and so are the companies. Countrywide, Washington Mutual to name a few. ALl these guys were buddies with Barney Frank and Harry Reid. The head of Fannie Mae made a fortune.
    Today we are capped by the people we sell to. BOA caps our total fees at 2.5-3% of the total loan amount. Again take a $50,000 loan and the company can make $1,500. Processing is $500 and that leaves $1,000 to the split with the company and the loan officer. That is the max you can make. Are the credid reports, appraisals, title insurance closing fee all going to drop in price-NO !!!!!. The cost is the cost. The big banks do not have to follow these rules. The will force us out. They have you beleiving this is good. I can beat almost every bank on the street as far as rates go. We are all selling the same product. My rate is 4.75% Bank X is 5.25% today. Who wins if I am out of business. The big banks. No competetion so the consumer loses.

  70. There is something wrong with the site. My first comments were marked as too spammy until I broke the comments into two submissions.

    It has happened before with other comments that they just never post. I’ve mentioned it before. Now other people have mentioned the same things. I think Dustin implied it was just me.

  71. What happened to lending is what banks wanted. Banks want teller sellers to originate loans. There is no magic discount to Loan Originators. It’s all funny money. Banks can do whatever they want, and have, and will continue to do so.

    You are looking at the end of your industry, the same as Real Estate agents are looking at an end of an industry, the same as Real Estate Investors have hit a brick wall. Title and escrow may survive in a limited fashion.

    What will you do next, what can be done to make your service viable in the future?

    The government only complied with the wishes of the lobbyists. Some idea that the consumer was involved in the rational, is pure conspiracy theory.

    • “The government only complied with the wishes of the lobbyists. Some idea that the consumer was involved in the rational, is pure conspiracy theory.”

      Now THAT was funny.

      Made it worth reading the comments all the way to the end.


  72. This is an interesting thread. I’m a Mortgage Broker and have been on this side of the business for the last 6 years. Before that, I worked on MBS trading desks at JP Morgan, Lehman Bros, Morgan Stanley, Deutsche Bank, Nikko Securities and CSFB. I used to package CMO deals back in the 80’s and 90’s before anyone even knew what a CMO was. There are too many points of view to respond to, so I’ll pick out a few, then give you all a chance to shoot my opinions full of holes.
    Russ, you seem like one of the good guys. My only argument with you is about the 15K in ysp and the client not caring. We both know that with a 15K ysp, IN MOST CASES, you could have gotten them a lower rate and made 7.5K in ysp. Had your client known THAT, they would have cared, believe me.
    Jillayne, love your point of view and there are plenty of unethical Drs., CPAs, etc., etc., so careful what we wish for. Our predatory lending could be analogous to Medicare/Medicaid fraud. I’ve seen plenty of bogus tax returns as well and I’ve also met quite a few INEXPERIENCED Real Estate attorneys who did their clients a disservice by representing them on their transaction. They should have stuck to divorce and municipal court. EVERY industry has it share of unethical people. Licensing and INEFFECTIVE regulations do nothing to weed these people out(see Bernie Madoff).
    I think most of us left in this industry feel that the regulations are coming a little too fast and furious for our liking. Perhaps our perceptions would be different if ALL the responsible parties had to abide by new rules. They don’t. Additionally, many of the other participants in the meltdown have been rewarded with a restructured market that allows for HVCC fees, low interest loans(TARP), loss/risk sharing and an uneven playing field in terms of licensing and disclosure/transparency. I personally think that is an abomination(no jokes here, I voted for our President). Rhonda’s point about campaign finance reform was spot on in this context. There won’t be any punitive laws enacted until regulated companies STOP having a major influence in the law writing process. Even though we elect Senators and Representatives, it’s the corporate lobbyists who make the rules. This is the heart of the issue.
    David, I’m not certain of how things would look if you were making the rules. My opinion is that you can’t regulate risk taking. If a bank wants to lend their money on a 200K condo in Florida and you think its gonna be worth 150K 5 years from now, why would you stop the bank from lending based on YOUR opinion. Doesn’t their opinion count? As long as you or I are not on the hook for their loss, and the loss doesn’t get socialized, thats a free market decision best left up to their risk management team, isn’t it?
    As far as responsibility for the meltdown is concerned, we are ALL culpable. From the retiree who demanded a 15% return on their IRA(where do you think the demand for high returns (ie subprime) came from?), to the mortgage broker, to the ratings agency, to our elected officials, there is enough guilt to go around. Yes, mortgage brokers need to take their share of the blame(and perhaps the ones on this thread to a lesser extent) and people in the know realize we are the low men/women on the totem pole. WE DON

  73. “As far as responsibility for the meltdown is concerned, we are ALL culpable.”

    Thanks for stopping by RCG David.

    Yes it doesn’t seem fair for the ethical people who are left to be faced with tougher rules and laws.

    The unethical will be back when the market turns the corner and now instead of an ethical choice, it will be a legal issue and hopefully the consequences will be greater to circumvent another bubble run-up and subsequent meltdown.

  74. Bizarre is the word that comes to my mind.

    How far out of reality has the mortgage industry gotten? You mean you make more than 1% for putting people into debt? Do you mean you got paid for single handedly collapsing the global economy, by more than 1% of a transaction?

    Yes, you did have the responsibility to tell your customer that the mortgage you were making was on an asset price far in excess of value. Of course the lender wanted to make the loan. The bigger the loan the more it would sell for on the secondary market.

    I really don’t have the inclination to explain the mortgage industry to you, you’re telling me that you understand it, that you have understood it for years and yet, you went along.

    You had a responsibility, the same as I did, to tell people not to buy, not to refiance, and to get rid of any property they owned. You had that responsibility to your customers, no matter what others were doing.

    You are the front line of defense. You are the responsible party. It is all you. You made the statements here, so take the responsibility.

    • David, how much do real estate agents get to make by selling homes? Some agents pushed buyers into more expensive homes than they were originally interested in or encouraged stated income type programs to accomplish the same.

      Maybe Congress will investigate RE commissions next since it is the consumer who pays for that.

  75. Jillayne- You are welcome. As I said earlier, a most interesting thread. And Mr. Losh, thank you for your feedback, you certainly have a unique perspective. This is some business we have chosen.

  76. You’ll be finding, as time goes on, that my perspective is very main stream. The person, in the field, and get used to hearing that term, “the person in the field,” was the one who should have known the market place they were dealing in.

    You can feel put upon if you wish, but it is true, you are the one who made the call. The lender, and borrower, relied on your expertise.

    You are either an expert, or professional. You were claiming a higher level of experise Mr. Thompson. It is your responsibility. Your transactions are your responsibility, no one elses.

  77. Jillayne:

    Girl, you sure know how to throw a party and stir it UP!

    Not sure why disclosing what one makes is such a big deal, heck we originators ask the borrowers that all the time! My biggest beef is that the new laws have made it MORE difficult to plainly show the borrower what’s really going on. And of course, what the LO charges is generally much different from what they earn.

    Russ, always glad to see your two cents here.

    David Losh, that is some entertaining and radical repartee. Like DT said, what would the world look like if you made the rules…

    To the originators that don’t know Jillayne (Emmet, Chris, Josh), I’ll attest that she gives good value in her classes, and understands the business well enough, and does her best to make the whole business better. That has been no easy task.

    I thinks she has a poorer opinion of LO’s than I do, but I haven’t met all of them that she has. Most of the LO’s that I have known have been decent folks, but I attribute that to being selective about which LO’s I associate with. She doesn’t get to be so picky.

    Glad to see you’re back in the thick of it again, Jillayne. It’s a poorer place without you.

  78. The interview was BS. Again it reinforces all the points I have made. He kept talking about wanting to stop things that have not been in the marketplace for years. That is like saying he wants to put warning labels on 8 track tapes or turn signals on a horse and buggy. Senator get with the program.

    I love her question about why LO compensation is linked with a borrower’s ability to repay. That is a great question. He completely evaded that question.

    Anyone else listen to it?

    • I listened to the whole thing. I guess what bothered me the most about it was that the Senator talks about his aides and underlings researching and writing the law. Basically, it is written by folks who have no freaking clue about the mortgage business and how this stuff works in the real world. They just listen to whatever lobbyist has their ear and can communicate in sound bites.

      He basically danced around the same questions Jillayne wouldn’t address.

      I am all for reform and the like but I think we are going to down a dangerous slope when we start trying to legislate incomes and it bothers me that none of these politicians really understand the impact of their legislation.

      I am going to write my congressman and tell him to focus on predatory trainers to limit their compensation to $15/hour. We also need to disclose how much all the materials used in the course costs so we can prevent the trainers from marking up above cost. After all, we deserve cheaper courses. The cost of these courses invested over the rest of my life would save me thousands of dollars!

  79. Real Estate brokerages should be investigated. The very idea a person could take some classes, and get a Real Estate license was wrong. Brokerages are liable for the transactions the agents do. My first comments on the Rain City Guide were that Real Estate brokerages should be held accountable.

    I started at Advance Properties. It was one of those places the country decried for the plaid jacket kind of agents that were harbored there. I’ve got stories, but the Broker, Dick Metzger, had a kind of handle on things. When things were going sideways you could talk with people who actually knew something.

    All these years later I have the same clients, and they make money. They make a lot more than I do, I just do the deals.

    Obviously, I’m not the touchy feely kind of agent. People who work with me pay me to make them money. That’s the game. Money is the game of Real Estate. If some one wants to pay for what they want they should be informed, ahead of time, what the financial consequences are.

    OK, this drives my wife crazy. She tells me just to shut the heck up, and let people do what they want. I say fine, as long as they understand what they are doing. So I tell them. If They want to be educated, They should take some classes, and I recommend that.

    I think every agent should be in a mentor ship program for at least the first two years. For at least five years every agent should be heavily monitored by the Brokerage that holds the license. After that it should be another two years before they can get a Broker’s License.

    So, even if the Brokerage is a desk fee, they should be mentoring, and monitoring every action taken by their agents. There has to be accountability.

    The run up in pricing, in my opinion, was a group think, herd mentality. In 2006 I encouraged any one, and every one, to sell, from 1998 to 2004 I encouraged people to buy, I have a system. People pay me to have that crystal ball, and I say, if you don’t have one, get out of Real Estate.

  80. If your questions “how so” is sarcasm? Then I love it!! I have my master degree (self-taught) in the sarcastic arts and I think we will become fast friends.

    If it was not, my answer to you would be….have you not read your own comments on this thread?

    Big wheels keep on turning.

  81. I have, and I blog for business. It’s a part of my routine.

    Here’s the facts though, millions of people paid way too much for Real Estate. Banks made the loans so they could sell them to the secondary markets. Those loans were packaged, and resold, while banks bought insurance that the price of those securities would go down. Banks made a ton of money. This is where the discussion of Real Estate agents, and Loan Originators diverges.

    We have a global economic crisis, and a blog post about the fact that the compensation for making these transactions may come under scrutiny. The response has been interesting.

    You are new to the business, less than a full ten year cycle. You think, based on the past five years, that what we are seeing is normal, some how we will go back to business as usual if only the government would stay out of the way.

    Well, we have a lot more to unwind, sorry, but business isn’t going back to normal any time soon.

  82. I agree; I do not believe the economy will be back to normal in a year or two and the fact that I have only been an LO for seven years not why I feel this way, I can read (just a lil) and I can see the growth in government, history and the future I see it written by the powers that be. What has got us here can be argued but we are here none the less, what is being done now by our state and federal gov might just cost my kids the “America” I can only see in the rearview mirror.

    “I should have been a farmer

  83. You’re out of business. What is so hard for you to figure out?

    You’re on a Real Estate, Word Press, blog site, that is just as capable of making mortgage loans, as letting people search for properties.

    Trying to make mortgage loan sales sound complex is foolish. Rates are posted daily. Bond Prices, Day Trading, Charles Schwab, redfin, Zillow, or Amazon, does any of that strike a chord with you?

    You are on a blog site arguing a post by a Real Estate Educator.

    You’re out of business. Loans are numbers, tied to large cash transfers. There is no mystery about it. Your job is done. You over sold the demand. Lobbyists, from your industry, are getting legislation passed to ensure larger profits for themselves.

    The lenders want your commission dollars, the same as large brokerages want Real Estate agent commission dollars. Expedia is the example most often quoted.

    Sheez, but by all means, write your Congress Person. Tell your Congress person to ignore Bank of America, who wants your commission dollars, and go after some one, an educator, who looks like she has a marketable skill.

    • David, I’m sorry but I don’t think you have a clue about what it takes to put a residential mortgage together in today’s climate. Regulations and guidelines change as quickly as you learn them…make a mistake on a good faith estimate and it can cost the mortgage originator thousands.

      I think that banks will continue to lower the bar as much as they can tolerate for their LOs since they don’t have to be licensed and the bank can “absorb” the loss easier and wants to pay mortgage loan tellers less (this is why many LOs have left banks that have changed their pay structure, like BoA)… banks believe that consumers will just stick to their local branches for all their needs and that they have the first chance to claim dibs on the consumer–and they’re right about that. They’re not giving consumers much credit as to having a brain between their ears–I think consumers shop more than ever and try to make educated decisions with their mortgage (the 2010 GFE, btw, does not help them do that).

      It is going to be interesting to see with the Merkley ammendment how the back end compensation is disclosed by a bank.

      For example, a BoA LO recently boasted on Twitter that she isn’t paid any rebate and so consumers should work w/her. I checked BoA’s pricing which was higher than my rates. Just because the LO isn’t getting paid on it, does that make it a better deal for the consumer if the BANK is? I or other non-bank LOs may make more “on the back” and give the consumer a lower rate than the bank LO who’s making less than me and charging a higher rate–how should this factor into the consumers decision on where to get a mortgage? This also goes to Russ’s point to Jillayne about how it really shouldn’t matter what the LO is paid (I think Jillayne bets a salmon dinner every time this point is brought up)…

      • Nice work, thanks Rhonda.

        This guy does not understand that most of us do not just sit a computer and send out GFEs to people over the internet like a “Ditech” I like you spend a great deal of time helping people and that includes those in trouble in their current mortgage (this is part of our fiduciary duties) and those that need someone to trust in advising them a long the road to home ownership.

        Try calling a mortgage rate widget, MBS or even Ditech for help I’m sure Mr. Widget would be happy to help.

    • David,

      What she means is that certain fees have zero tolerance and others have a 10% tolerance. It mostly affects Purchases. In Florida, the seller usually pays for tax stamps on the deed as well as owner’s title insurance. The buyer pays doc stamps on the mortgage. However, if you don’t disclose the taxes and the title insurance, the lender has to eat it. On a large loan this can be a significant amount. Transfer taxes are a zero tolerance item, which is so retarded. Origination charges I agree they should be. But transfer taxes? That is the result of Washington eggheads passing laws on things they have no idea about….just like this Merkely Amendment.

    • Screw ups that aren’t even our fault or even directly affect the buyer can put the LO on the hook for thousands of dollars.

      David, you should really go sit and visit with an LO and really see what we do and how we make these transactions possible. There is a lot more going on behind the scenes than you can imagine which is why there are still LOs. If it were just a transfer of money as you claim, then yes there wouldn’t be LOs but we both know there is more to it than that.

      Just like buyers can find a house without a realtor, sell a house without a realtor… please explain what you do that warrants 2.5-6% commissions. I know pointing out bathroom fixtures and completing a fill in the blank purchase contract isn’t worth that…

      Most jobs seem easier than they really are when viewing from the outside, especially when a lot of money is involved.

    • David, In Washington state, the most expensive screw up a LO can do with their GFE is to forget to quote the owners title insurance policy–even though the SELLER pays for it…it’s in the “10% bucket”. So if I forget to disclose this cost, that is not the buyers, I’ve paid for 90% of it (anything over the 10% bucket). For example, on a sales price of $500,000 the owners premium is $1200…if forget to disclose this fee on my GFE, it will put me over my 10% tolerance by $1080 assuming the rest of my “10% bucket” is perfect… I’ve just lost a grand AND it didn’t even benefit the buyer…it’s the seller’s cost.

      I had to pay a small fee on one transaction because I disclosed it in the wrong spot! So even though the fee was disclosed, it wasn’t in the right “bucket”.

    • Jillayne, I think I make less than most…LOL… you might need to rephrase your question to how much is the LO + mortgage company making. For example, if I typically “charge” 1%, I might only make half of that if I have a 50/50 split with my employer.

      There are also a lot of variables–a loan that’s easier to do, I’m going to charge less–same thing is true with a higher end loan–the % will be smaller. I also started giving a credit to borrowers who complete an online application (vs me meeting with them) since this saves me time & money–so I pass that on to them.

      It’s not a simple question 🙂

    • Margins have gone up dramatically in my neck of the woods. I would say I am averaging around 1.5-1.75 srp/ysp per deal nowadays. Typical deal is around $300-350k. LOs usually get 50-70%. It was probably around 1% a couple of years ago in my market which has some of the fiercest rate shoppers. There is a lot less competition which has helped margins and also it simply isn’t worth it to do deals on the cheap anymore given the underwriting headaches. The guys willing to work for $500 a deal have been completely flushed out of the market. You could do those all day long when you had SISAs with high FICOs available. You really didn’t have to work too hard to get them to close so volume was the name of the game.

      FHA deals seem to be priced around 3-4% across the board in my market.

        • Between SRP and ORI I try to average 1-1.5% per loan I have loans going this month that range from 55k to 399k . And as far as split is concern it is all about what you get from your employer at the 50-100% split.

          I have interviewed or work at all these lenders;
          Wells Fargo, Mortgage Masters, Mortgage Advisory Group and a straight broker shop all use different ways of delivering or pricing YSP/SRP to the LOs so the answer to these questions can be a little scudded.

    • I think the bill will have an issue with the “5% skin in the game” portion. Other than that, I’m not seeing a huge difference that what’s being proposed–am I missing something?

  84. I received between .75 and 1.25 Gross per loan. My average loan is $202,000. My company takes 10% plus $395 processing and then I pay taxes on 90%, $1917 gross max before taxes. With the new restrictions ie GFE and HVCC processing times are about 4 weeks then we are paid about two weeks after closing. I take a loan application today close by July 15th and get paid on August 1st if all goes well. Loan applications for May 2010 were at there lowest level in 13 years per Mortgage Bankers Assoc. I have been doing it for almost 30 years and have worked for Banks and had my own Mortgage Banking operation. These new rules are hurting the consumers and this bill proves Congress does not have a clue what is going on. The Banks are making 4-5 points per loan and their loan officers are not helping consumers because they are order takers. They want to squeeze us. I was offered a job at Chase Bank and they pay more to the LO for Chase customers than for Realtor business. They do not want realtor business at all. The Banks want their own customers. My rates were 4.75% 0 points and Chase was at 5.375% 30 year fixed rate. How is this better for the customer? Fees were the very same. At 5.375% I would get 4.00 SRP but I am limited by my lenders to 2.5%. This is a great bill. Once again be careful what you wish for. They are going to tax the website owners next and every comment written is taxed at $100. Sounds foolish?

  85. Thanks for your input, Ebe. I know that the majority of the LO readers on this thread are like you, an independent mortgage broker LOs and/or non-depository mortgage bank LOs. Yeah, the banks are definitely keeping their yield once they sell to fannie/freddie so they can rebuild their capital. By the way has anybody noticed the dramatic uptick in mortgage lending advertising on the radio recently?

    • Compensation is UP, not down in the prime/conforming world for us. We are doing fewer deals, but making more per deal from what I am seeing. I think my volume will be less than may 09 volume, but I am pretty positive that my compensation will be the same or greater.

      We never were making 3% on a regular basis because option arms were not a big part of our market. In the prime world, making 1% used to be pretty typical on loans $300-$400k i my market, but that 1% has increased to around 1.5-1.75% from what I am seeing.

      A big myth is that sub prime loans paid more. They didn’t. Subprime loans had almost no yield after overlays on them and most of the sub prime LOs I know just could get away with charging large origination fees upfront because they were the last resort.

  86. 10-15 years ago I would make 1-1.5 per loan and my average loan was $550,000. Today with lower house values it has dropped $300,000. Our FNMA Limits are $417,000. Our County is the 5th wealthest in the Country and we are a top ten place to live according to Forbes and Money Magazine but it like pulling teeth to get loans approved above the $417,000. Anyone making 3-4 points per loan on a $300,000 and just feeding the flames of maximum commission earned.

    • I’ve never made 3-4 points on a loan–I would have subprime/bank reps get ticked at me for not pricing my rates higher–they’d say “come one–you have to at least make 2!” I couldn’t just do it…

    • The market where I am generally prices FHA loans at 3%. Absolutely no way the market will bear 3% SRP/YSP on conforming loans though unless the borrower is totally clueless or in a situation where no else can get the deal done.

      I have gotten commissions from -$1500 (meaning I actually paid to close the deal) to $34,000 for a single deal. The $34k was on a $3 million dollar loan that took me probably 4.5 mos to get done from start to finish (complicated trust issues, dealing with lawyers, etc) and I was the only person to get it done after it had been denied several places. I also charged it as a POINT fully disclosed upfront. Saved my borrower like $20k a yr in interest payments. He paid with a smile. Wealthy borrowers don’t get into nickel and diming over an .125%. It just wanted to get the deal done and not have to be bothered with it.

  87. I am generally happy making between $3,500 and $4,500 per deal for conforming and slightly more for jumbo conforming and jumbo. Have the usual fees that I pass through to the consumer, although I will say being in New Jersey, the third party fees are higher. My average loan size is about $345,000. If its an easy deal(are there any of those left?) I’ll be on the lower end and a more time consuming (investor, self employed) deal with tons of additional paperwork will be on the higher end. I offer clients 3 scenarios in terms of rate and closing costs and let them choose. I’ll even show them wholesale rate sheets for trust and transparency. Rarely get questions about my fee, plenty of questions about third party fees. No application fee for repeat clients. I pay for appraisal for my first time buyers who come to one of my seminars. Largest check ever was a little over $12,000 on a $4,000,000 purchase with a $2,100,000 loan. That was a one in a miliion(actually one in a two point one million).

  88. Between SRP and ORI I try to average 1-1.5% per loan I have loans going this month that range from 55k to 399k . And as far as split is concern it is all about what you get from your employer at the 50-100% split.

    I have interviewed or work at all these lenders;
    Wells Fargo, Mortgage Masters, Mortgage Advisory Group and a straight broker shop all use different ways of delivering or pricing YSP/SRP to the LOs so the answer to these questions can be a little skewed.

    Keep on truckin!

  89. So if LOs are currently charging below 3% per deal anyways, it sounds like The Merkley Amendment won’t have a huge impact on LO compensation if the amendment limits compensation to 3%.

    Yes, the amendment ignores that most of the predatory lenders are out of the business but puts the cap in place for when they return in the future.

  90. Before heading over to Craig’s post about putting in offers on foreclosed properties, let me again say this was a fantastic post, with a great thread of comments.

    Do you really see yourselves doing a whole bunch of loans? Do you see a steady supply of people taking on debt? Or, have people been educated enough to know they have to pay this money back?

    This regulation benefits the banks. Banks want this the same as the wanted quick foreclosure, and the changes to the bankruptcy laws. This is the same thing as redfin getting rebate Brokerage. It looks like a consumer driven action when in fact it puts deep pockets in charge of the Real Estate Industry.

    The only thing the consumer can do is make the best deal possible with the intention of paying the home purchase off, quickly. Once again, the same as it has always been, paying down the principle balance is the only way to create equity.

    Your compensation is irrelevant. You are either in the business, or working some commission sales job. Make a choice, and get on with it.

  91. It all depends on the borrower, but you try to make at least 1-1.5%. I looked at my last few months, and the average is about 2%. Some loans that you do a lot of work on, you can charge more. You can’t make more than 3% YSP anyway on my correspondent rate charts and 4% for FHA. Also ARM loans max out at 2%. Our split is 45% for company provided leads, and 60% for referrals. Our leads are real time Internet leads (Lending Tree, LowerMyBills, Quinstreet, Bankrate, etc). Good stuff.

    My problem is that it seems that Washington doesn’t know what it wants to do, because they have no idea what we do in the marketplace. This is nothing but politics to “appear” like they are doing something. The verbiage is very vague, and what happens is that every lender will give their own interpretation on this just like GFE 2010, MDIA, etc. This amendment just needs to die for that reason.

  92. Rhonda I travel all over. Just got back from Oklahoma. The average loan amount for those LOs was definitely under 100,000 and those LOs were doing just fine…..remember the cost of living is lower in other areas. Those LOs were doing more volume perhaps.

    • or charging a higher percentage. I network with LOs from across the country and I know that loan amounts can greatly vary. It can also depend on if a LO specializes in a certain market as well.

      The 3% cap for a low loan amount will impact those LOs who are in lower priced areas.

  93. “The 3% cap for a low loan amount will impact those LOs who are in lower priced areas.”

    Not necessarily. The LOs that I interact with are not earning above 3% on their deals (front and back end compensation) and instead they are doing more volume. In addition, the cost of living in their neck of the woods is not the same as living in a large metro city.

  94. Jillayne–I (and I think many LOs) would love to see you write a post about how you would select a mortgage originator–what do you look for–what’s important to you… is it compensation? best rate and best cost? experience?


    • would that be wrong? How much is a listing agent worth? how much is a selling agent worth? and how much is a loan originator worth?

      Agents and LO’s all have different splits based on the agreements made with their employers–which the consumer has no part of… so lets just base this on what a consumer should pay (not what each should earn).

      PS: I’m darn sure I’ve never made more than a RE agent on a transaction.

  95. David:

    It depends on the deal. Typically, LOs do not price loans at 3% unless it is an FHA loan and many of those may not be priced at 3% either. The 3% issue comes into play because the 3% includes more than just LO compensation and also makes it harder to offer no or low cost financing options on smaller loans.

    Here is an example. A client calls and has a $100k loan. It cost about $2k to refinance in my market with lender, title, and appraisal fees. Under this 3% rule, the most we could make on the loan is $3000. If we pay all the closing costs out of that $3k, we are left with $1k. That one $1k is then split so lets assume 50%. Therefore the LO nets $500 before taxes. Hardly worth the effort and that consumer will have a tough time finding someone willing to do a no cost deal if they are short on cash and don’t want to pay closing costs out of pocket.

  96. They can in some situations. Sometimes borrowers want no closing costs loans. The way those loans are done is by pricing the loan with a higher yield spread or service release premium so the LO can absorb the customary fees out of their gross commission. This results in a higher rate for the borrower, but they do not have to bring cash to pay closing costs. Depending on how long they may stay in the property, this may make the most sense for someone who has a short term outlook financially.

    A 3% cap will be problematic for smaller deals. For example, I have a deal in Florida right now that I had to price at 3.5% because the borrower wanted a no closing cost deal. Because title fees in florida are high along with the state’s intangible tax on mortgages, the onyl way I could price the loan so the borrower wouldn’t have any out of pocket closing costs is to do it at 3.5%. I am only netting probably $1500 when all is said and done but I think the gross fees are around $6500. I absolutely would not have been able to do this deal for my client under this new rule.

  97. Hi Russ,

    There is no doubt in my mind that loan originators WILL do that smaller loan scenario, earning less than they’d like.

    Some will pass, others will jump at the chance to do that loan.

    • Jillayne, LOs will have to target the “ideal” borrower if they want to make a living in this market. Congress and other folks will beleive this is the best for consumers but the end result is always different.

      Fremont is coming back (just out of BK)… I’ve never used them in my years as a LO…but I actually now see a need because of all the regulations and tightening that is preventing real recovery.

  98. Jillayne-Maybe I am wrong but the way the bill is written you cannot financially do a low loan amount. The total of all fees are 3% not just broker loan fees. Please tell me how you can originate a $50,000 loan with total fess of $1500? Not possible unless you jack up the interest rate and sell the security for 105-106. The only people who can do that is the banks. The real force behind the bill. 4.50% is at par and 5.625% pays 106. Who gets the best deal? The consumer? NO WAY.

  99. Rhonda/all,

    Please submit inline comments so I don’t have to go back and forth, up and down, to figure out who’s saying what. Most recent comment at the very end works best for this very, very long string of comments.

    Rhonda, the loan originators I meet in other states where the average loan about is right around 100K, the cost of living is MUCH LOWER that Seattle. Making $1500 or less on a file is just plain fine and dandy for loan originators.

    Think back to how slow/scary it was in 2008. We are going to get slow again. At that point, LOs are going to be thankful for what they can get.

  100. Jillayne, I’d like to see our comments go back to being a “string” as well–agreed!! I’m afraid we’re going to be hit hard too w/how underwriting guidelines continue to tighten across the board. I received an email saying that Fremont is out of BK and will be operating under a different name… I’ve never sent a loan to Fremont but with how tight everything is becoming–I would now for the right borrower. Folks who have jobs and decent credit are afraid to refi because of the potential of the home not appraising due to the foreclosures & short sales…or they can’t refi because of some lame-ass guideline like I ran into yesterday where my client doesn’t qualify for a HARP refi because Fannie Mae securitized/bought the loan ON March 1, 2009 (had they done so 1 day eariler, my client would be SAVING $250 a month–this helps the economy!!).

    very frustrating.

  101. What helps consumers, and the economy, is to pay off debt. Refinancing is a black hole. You lower your rate so you can pay longer.

    I was working with a couple yesterday who have three kids, one in college, one graduating high school, and one in high school. He, and she are working two jobs each to pay off the mortgage. The house is beat to heck, but they are paying down the mortgage. They are doing it, and paying for college, in cash, for the children. They spent the formative years with the kids, and now they work to pay for that free time.

    This is the economy. People will be paying debt for decades to come.

    This legislation is, I sincerely hope, putting the brakes on people who are taking on hundreds of thousands of dollars in debt.

  102. Well this looks to be the 200th comment so let me respond now rather than later.

    Freedom is a right in America. Freedom also includes the right to chose. As we, the readers here, can see, the compensation of the Loan, Originator, Officer, or Sales Representative, is a little murky. It looks to me that Mortgage Representatives have, or had, a wide variety of ways to increase their compensation. It’s still unclear to me how that compensation was not openly discussed with the customer.

    Real Estate agents are beat up all the time over the commission, but Mortgage Representatives seem, from the comments here, to have gotten a free pass.

    I’m going to make the point again. Banks are in the business of knowing asset pricing. They have entire departments dedicated to that task. Banks made mortgages on prices far exceeding core value. They then sold the Notes, those Notes were used as security for Financial Instruments. Those Financial Instruments were bought sold and traded. Those Financial Instruments are in our 401Ks, Pension Funds, Government Entitlement Programs, and a part of a global economy.

    I think this legislation is just a step in the right direction. If a Real Estate agent were making more than 3% the world would be screaming. Evidently the Mortgage Industry is not as self regulated as Real Estate agents.

  103. If the 3% LO commission is not the issue. Take a $50,000. The lender gets their $500-$900 out then that leaves $1000 Max to the mortage broker minus processing for $500 leaves either $100 or $500 for the company to split with the LO. Realtors total commission is 6-7% not 3. You are only looking at the list or sell side. Just like the bill is looking at total loan fees. Not the Lender Fees or the Loan Broker fees. 3% commission is more than fair if it is the mortgage broker fees only but do not throw in the lenders fees also. How about making the real estate fees 3% total? Realtors would be up in arms.

  104. David:

    LOs have not gotten a free pass. We don’t make nearly as much per deal as a typical agent on average and honestly, I would argue LOs are more integral to the deal the majority of the time. The bottom line is that LO compensation is essential a portion of the banks profit margin. Unfortunately, banks have this way of over complicating things but to keep it simple:


    Wholesale Interest Rate + YSP/SRP = Retail Interest Rate. Consumers want to know their retail rate. PERIOD. All the other stuff is just noise. The retail rate is what they pay each month on their mortgage. I have NEVER had a consumer try to shop for a mortgage based on LO compensation because LO compensation DOES NOT MATTER. What matters is the final/retail interest rate on the mortgage they are signing up for.

    Like I said, a simple experiment will clear up any confusion. Ask any consumer who is smart enough to own a home and pay a mortgage…

    Loan #1 has a rate of 5% and the LO is making $5000 in commissions.
    Loan #2 has a rate of 5.375% and the LO is making $1500 in commissions.

    Which is the better loan assuming all other things with the loan are equal? If you are paying the mortgage each month on one of these two loans, please let us know which one you rather pay and how the LO commission factors into your decision.

  105. Any updates forthcoming now that the bill has passed?

    As always, I like to mooch off of your research! Keeps me smarter!

    While not directly related to the mortgage side, this is some excellent commentary on the Fin reg bill. Says it’s a win for banks, a loss for consumers. The stock market instantly agreed. Look at the results for JPM, C, USB, BAC on Friday.

    While I may be shamelessly plugging the Pragmatic Capitalist, it comes with my highest recommendation for reading, and boasts an excellent group of commentators.

  106. 1% total compensation for loan officers? Really? Have you done the math? oh my God.
    Banks can make as much back end and not disclose it?
    How is this level? Please emlighten me?
    If you ran a mortgage business you would know this loses big, big money.
    Congrats to the big banks.

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