Loan Originator Feels Entitled to Overage and Asks for Jillayne’s Advice

This is a good representation of the emails and blog comments I receive daily over at the NAMF website on the topic of loan originator compensation:

Dear Jillayne, I read your article because I am trying to determine when the loan originator compensation limits will go into effect and what I’m going to do if this acutally happens. As an LO for 10 years, I take great pride in being a member of the lending industry and in my opinion, I have provided an invaluable service to my customers over that period.  I will also admit to having earned the ocassional “overage” in a transaction.  I did not price my loans to make overage, however if the par price paid less than 1% (as often happened because of the rate sheet) I felt I was entitled to do it.

I do take issue with you on the amount of work that an LO does to earn their compensation, a competent LO not only takes the 1003 loan application, I take an appropriate amount of time on the front end of the transaction to thoroughly explain the loan process. I tell customers exactly what they can anticipate.  I then take a complete application and discuss what documentation will be required and why. I spend at least 2 hours reviewing every disclosure, state and federal, that they are signing.  I then collect all documentation, prepare the loan package, sort the package to a stacking order, order title, order appraisal, register the loan and submit to processing.  I get the conditions which I discuss with the processor, and then collect the conditions and submit for final approval.
My company has just announced that they are discontinuing payment of all overage effective January 1, 2011.  Regardless of your opinion on overage, it is a significant component of any LO’s income.  While we can debate whether it should or should not be, the fact of the matter is, it is!  The companies are not going to increase my compensation to account for that loss in income, and I find myself having to generate 50 or 75% more sources to find loans.  How would you approach that change in your income?

Dear Entitled to Overage,

We exchanged two emails in which I asked you how many hours you spend, on average per file and I also asked for your average loan amount.  E2O, you said you spend an average of 15 hours originating each loan and your average loan amount is $175,000.  Let’s do the math.  I’m going to estimate that in today’s competitive market, a loan originator would be hard pressed to get away with earning more than a 1 percent loan amount with a 1 percent overage

Let’s pause and quickly educate readers on overage income: This means marking up the wholesale interest rate and selling the consumer a higher interest rate at retail rates. The lender funding the loan, who is very happy that you’ve sold a much higher rate, rewards the loan originator by paying them a percentage of the loan amount at closing.  Mortgage broker LOs disclose ALL their compensation on line 1 of the Good Faith Estimate.  Mortgage banker LOs do not have to disclose this overage income as of today. However, two rules at the federal level will change this come April 1, 2011: The Federal Reserve Board Rule and Dodd-Frank Wall St Reform.  More on LO Compensation limits in a future blog post.

So E2O, I’m going to estimate low. Let’s say you currently feel entitled to make 2 percent of the loan amount as your fee for working 15 hours.  That’s $3500. Let’s divide $3500 by 15 hours.  That comes out to $234 per hour.  Please help me understand how a position that does not require a high school diploma is worth $234/hour?  If a person making this kind of hourly wage works a full, 40 week, that means this same person is grossing $486,720 per year.  No wonder loan origination attracted so many people who were only in it for the money.  LOs could work as little as 10 hours a week and make a comfortable living.

Let’s get back to your question. You’re saying that your company is going to take away your ability to earn the hidden “overage” income immediately and you’d like my advice on how to approach that change in income. 

First of all, I highly doubt that you’re working a full 40 hours per week.  If indeed you were actually working that hard, you’d have more business sources than you’d know what to do with so my first suggestion is to honestly reflect back on how many hours you actually spend working on the job of origination.  Subtract the hours spent going to the gym, talking sports with the guys over coffees or beers, subtract the hours spent on Mortgage Grapevine and the right wing political conspiracy blogs or Huff Po or wherever you’re currently wasting time and look at the bare bones number of hours spent talking with past clients, getting off your butt and into Realtor offices drumming up business.  My first suggestion is to work harder.  Don’t like that? Go find another job in another field that will pay you $233/hour.

Second suggestion: Ask yourself how much you love mortgage lending.  If you’re only in mortgage lending for the money ONLY, then my second suggestion is to leave the industry. That’s right, get out of mortgage lending and go do something that you really love.  Life is short (and life is long. It’s a paradox.)… life is too short to spend it in the mad, mad, mad world of mortgage lending unless you love what you’re doing so much that you wouldn’t dream of spending life any other way. This is the choice in attitude it’s going to take to get you through 2011 and beyond. 

Third suggestion: If indeed you really, truly are worth $233/hour then go ahead and charge that! Charge your clients a 2 percent loan origination fee on line 1 of the Good Faith Estimate and when they shop around and find a lower interest rate and lower loan fee, explain to your clients the reason why you are worth that amount.

Fourth suggestion: Accept that you’re not worth $233 an hour.  Why? Because if you were, you wouldn’t be asking for help.  Banning overage income is going to separate the men from the boys and the women from the girls.  Loan originators: You never were worth $233 an hour as a brand new, unexperienced loan originator.  All it takes to get a license is a 20 hour prelicensing class, passing a background check and a national and state licensing exam, and to not have any felony convictions in the past 7 years. And if an LO wants to work at a depository bank, NONE of that is required!  No loan originator is now or was ever worth $233/hour when they are first licensed.  Maybe an extremely experienced LO with, say, 25 years experience (which means they entered the industry before the subprime lending era) is worth that much.  Why? Because he/she can originate a loan IN LESS THAN 15 HOURS.  That 25 year veteran knows his/her products, knows FHA/VA/USDA, knows the FHA 203K Program which will be highly used as soon as more REOs hit the market. That 25 year veteran has seen the rise and fall of the Savings and Loan crisis, has seen many refi booms, has lived through countless underwriting guideline changes, as lived through the same amount of federal law changes, and has the experience, maturity, and knowledge to help a wide variety of clients.  This loan originator is very valuable.  A brand new LO was never worth $233/hour and one of the big mistakes company owners made was to recruite people through greed to be LOs.

Fifth suggestion: Now that you’ve accepted that no green LO is or was ever worth $233/hour reset your own worth. If it seriously takes you 15 hours to originate a loan, I’d say that you don’t know as much as you think you know (this is very common for LOs who were hired during the subprime era) or you need to learn how to work more efficiently and spend more of your time procuring new clients.  Don’t like Realtors? The majority of LOs who were birthed in subprime boiler rooms despise all Realtors because Realtors tend to hold LOs accountable.  So if you don’t like Realtors and you don’t want to work harder to procure more clients…..

E20, my sixth suggestion is to accept that your value to your company is much less than you think it is. Reset your lifestyle and spending patterns to match your worth to your company and client, or prepare to work harder and smarter in 2011 and beyond.

I suppose there’s another option. You could open your own bank or mortgage bank.  Now you get to keep the profits for yourself.  As I look around the mortgage lending industry I see many faces of company owners who started out as loan originators and worked their way up the ladder to the point where it was time to start their own company.  This is always an option for any of us…who want to work that hard.

86 thoughts on “Loan Originator Feels Entitled to Overage and Asks for Jillayne’s Advice

  1. Jillayne, when I read E2O’s email, I don’t think they’re making 2 pts as an average on all his/her transactions… it looks like it’s just over 1%.

    What else is missing is the LO’s split w/their employer and any fees they have to pay out of their share.

    You may also be surprised at how many hours LO’s who are “successful” in this market work. Many probably do work over 40 hours a week and/or are available on weeknights or weekends.

    I’m not sure I totally agree with your math 🙂

    If this LO works 40 hours per week and made $175k in 2010; they make $84 an hour–IF you’re going to look at their wage as hourly.

    Most LO’s have NO GUARANTEE of what they will make from year to year AND I’m concerned too about what will happen with the changes this year…if an LO is sick or has to take time off, it’s probably unpaid and/or they’ve lost momentum with their pipeline.

    I encourage anyone who thinks LOs aren’t worth much to either find a new LO who is, find an LO who is worth what you think they are–you might have to use someone w/little to no experience, and better yet–try being one.

    NOTE: I’ve updated and added to my comment below I did mis-read her post as the LO’s income being $175k and not $175k for an average loan amount…my “corrected math” is in my updated comment.

    • I am E2o, what ever the hell that is, here is my response to your goss distortion of the facts, and perhaps a little education about Mortgage Origination would be appropriate before you write the nonsens you did.

      I read your blog, and I guess I deserve the ridicule because I thought I was dealing with a legitimate, knowledgeable journalist. Clearly you were just using me to make a point for your blog. If you knew anything about the Loan Origination industry, you would know that no one makes 2 full points, that you never make the same amount on every loan, many times you loose money on a loan to save the deal. If you had bothered at all to get the facts you would have asked how a LO is compensated. You do not care, but I will share it with you.
      LO’s get generally get paid in one of two ways. The earn about 50% of the fee income, this includes origination, underwriting, processing etc, plus up to 50% of any overage. If the total fees on a loan are $2000 and there is $500 in overage the most an LO will get on that deal is $1250. The second way, and the most prevalent is on Basis Points which = 1/10th of a percent. The LO is paid about 50 BP’s per loan, so a loan of $175,000 would pay them $875.00, and overage is split based on volume, but never more than 50%.
      Your comments are particularly insulting to anyone who is a professional in this industry. Not only do we have to know and follow: RESPA, TIL, ECOA, HMDA, FCRA, and all their derivatives, we have to be able to explain them to an unknowing public. We are required to be licensed by the State and the Federal Government at a considerable expense, and we are required to attend Continuing Education on an annual basis. My best year in the business I earned $175,000.00. That same year, my team won a JD Powers award for customer service, and my compensation was regulated by my customer service scores.
      I find your approach to my original comments disingenuous, and manipulative to your argument. There are individuals in every industry that are unscrupulous, it is noteworthy to me that you have not taken on the Realtors and the Attorneys for any of your vicious scorn.

      • Hi E2O, Thanks for visiting RCG and taking the time to reply. Realtors and attorneys are a totally separate topic. The topic at hand is LO compensation.

        LOs are not suppose to earn any compensation from processing fees, unless they are processing the loan. LOs are not suppose to earn any compensation from underwriting fees. That fee is to compensate the underwriter.

        No wonder the GFE was changed to put all compensation to the lender/broker on line 1.

        I absolutely know how LOs are compensated having been in the business for 25 years.

        The reason your compensation is being limited is because people charged excessive yield spread and overage way, way beyond 1 or 2 points.

        The Fed Reserve Board rules and Dodd Frank bring everything down to a total of 3 points max. With your commission splits now, just quote 3 percent on line 1. If you’re worth it consumers will pay it.

  2. It’s been pointed out to me that Jillayne’s post stated that this LO had an average loan amount of $175k – I misread it as this personal annual income – sorry about that. I see “your math” now…but I still think it’s off since a “split” with the employer (very similar to how RE agents are paid) is not factored.

    Again–from reading the message, I don’t believe they “averaged 2 points”. I think that’s a high estimate based on their reference to “occaisional”. Let’s say they averaged 1.5%.

    175,000 x 1.5% = 2625.00.

    Let’s assume the LO has a split with the company he’s employed by of 50/50. Most do NOT make 100%. The origination fee often is paying for more employees/cost than the LO’s compensation.

    2625/2= 1312.50

    The LO may also have per file fees they pay the company or they may be eating extension fees or other fees to avoid having to redisclose w/the GFE (or maybe they’re not even allowed to).

    1312.50/15 hours = $87.50.

    I don’t have issue with someone who’s an expert in their career making $87.50 per hour.

    Even if you use the 2 points model – the figure is going to be drastically different than what you’ve used in your post. (closer to $117 per hour).

    Jillayne knows that I wish all LO’s were paid hourly… I’ve written about it here at RCG years ago…but that’s not the case.

    Regarding picking on this LO for 15 hours spent on average on a loan…I’m curious how much I spend….some loans take much longer than others…some clients need more hand holding. I think it’s possible…especially when you factor how much time it takes to explain the GFE and all the new disclosures (we have a few new ones effective 1/1/11). When it’s a purchase, I’m often preparing several preapproval letters and updated rate quotes for all their scenarios. When it’s a refi…I could be sending out several quotes before someone locks.

    Consumers should have the freedom to shop and select LO’s…their rates and manner will dictate if the consumer wants to work with them.

    LOs should have the right to charge what we want (within legal reason) to provide our services…if an LO is charging too much and the consumer does their homework…that LO will be unemployed (or under-employed).

  3. I continue to find it interesting that so many LOs feel entitled to sell the consumer a much higher rate without disclosing that the rate is higher….and the LO’s compensation is higher, too…..AND ALSO believe at the same time that they have the customer’s best interest at heart by holding back this information.

    At the moment, mortgage broker LOs are the only choice for a consumer who is looking for full disclosure of all compensation. In addition, mortgage broker LOs owe fiduciary duties to their clients in Washington State.

    I say if LOs are completely certain that they are worth what they are making, then why not just TELL the consumer, “This is my fee. Here is what I do for you to earn this fee.”


    We have an entire generation of loan originators who have been trained that they deserve to make six figures with no experience necessary. Yes, some have fallen out of the business,

    I was talking with some LOs a few weeks ago. Two of them had earned some serious dough during the subprime heydays. Both lived large and when the subprime market crashed they lost everything…homes, bankruptcy. I asked them if they could do it all over again would they do the same thing or would they trade in their high income earning years to instead just make a STEADY good wage.

    Both said they’d rather have steady income over the high highs and low lows.

    Compensation limits are not a new concept. Adapt and survive.

  4. Jillayne, I thought I read this person has been a mortgage originator for 10 years?

    A LO IS disclosing the rate is higher…the consumer has this informtion on the GFE and/or any rate quote/inquiry form the LO is providing. The consumer CAN shop.

    Consumers need to wise up and also realize that going for the lowest rate at the lowest fee may not wind up equating to the best service or a closed loan. I can’t tell you how many consumers email me with regrets for chasing a rate only to have a mortgage originator not perform.

    Rates/fees are important, but it’s not everything. Jillayne, how much do you think a LO should be compensated?

    Have you done this job lately from start to finish to see how many hours it takes? A GFE alone for me takes at least an hour…I have to make sure all my fees are perfect or I’m screwed. I’ve always been very close (typically w/in $100)…but now if I make a human mistake–like forgeting an owners policy fee that the buyer doesn’t even pay for, I’m out $1000 or more. It’s expensive.

    I’ve been on the mortgage originating end of this biz 10 years and I can tell you, it takes much longer than it did before.

  5. Hi Rhonda,
    I think LOs should be able to charge whatever they want to charge….provided their compensation is honestly explained to the consumer. Unfortunately that didn’t happen over the last decade and that’s not going to happen voluntarily in this decade, so the government steps in and puts a cap on compensation and takes away the ability to earn undisclosed compensation.

    A recent law school graduate isn’t worth $500/hour.
    A recently licensed loan originator is not worth $233/hour and arguably not worth $87/hour. This person has to practice on MANY deals before he gets his sea legs. And maybe this is taken care of at the branch level split where the house gets a bigger split while the branch manager trains the new kid.

    LOs who are brand new are worth less, LOs with 25 years of experience ought to have the ability to do the same job in less time and are worth more to the consumer.

    Because we’ve paid ALL LOs a percentage of the loan amount (and unlimited, undisclosed overage) All LOs think they’re worth that much but the free market can find green, no-nothing originators and plunk them down at a call center at and pay them peanuts. Those companies quote lower rates and fees, win the shopper’s business, and the consumer ends up with a horrible experience 8 out of 10 times. This is NOT good for the industry.

    I think we’re heading back to the days where everyone is going to quote a 2% fee on line 1.

    E2O can also go work the jumbo market as another option.

    Mortgage broker LOs who switched over to work at a mortgage bank in 2009 to avoid disclosing their overage are having a hell of a time wrapping their heads around “full disclosure.”

    Mortgage broker LOs who sailed with the winds of change in 2010 and are now fully disclosing all compensation have already made the “full disclosure” transition and will do just fine with compensation limits under Dodd-Frank Wall St Reform.

  6. Should a new real estate agent earn 3%? I think newer LOs probably do charge less…back when I was starting off, I know I did. And I know that many RE agents gave me tougher deals for me to “prove myself” on.

    Jillayne, you’re factoring your math on hours per file but if you factor a LO’s hourly income based on total income/hours worked during the year, you’ll come up with an even lower figure. A lot of the work LO’s do for consumers is without compensation (review credit reports, reviewing scenarios that do not consumate to a transaction, etc).

    It’s scary to me that we’re in a society that is trying to set limits on income. I am very much for letting competition and free markets happen (within laws).

    A consumer can vote with their feet. The biggest mistake many consumers have made is taking little to no responsibility with their mortgage. They “trusted” who had the lowest rate and who was the smoothest talker. They ran away from folks who offered more responsible products or who suggested they wait a year or two to improve their credit.

    What may happen after April 1, is that once the economy improves, you will see even more LO’s leave the business… until you do this job, you have no idea.

    And I can tell you that before I was a mortgage originator, with my 14 years of title/escrow experience, I didn’t think too highly of the profession in general. Now that I’ve done it, I know there is more to it.

    I hope we’re not all judged in our professions by what the lowest elements do.

  7. A very interesting discussion — and a hilarious post! 🙂 Who knew other people’s texts were so funny?!?

    From my perspective, I cannot help but note the similarities between the mortgage broker industry and the RE broker industry. They both began essentially as salespeople paid on commission, yet they have evolved into representatives and protectors of their clients. They both have very low barriers to entry into the profession. They both relied on information accessible by the broker and not available to the consumer as a means of increasing their compensation, and that information is now available to all. And they both allowed people to make quite a bit of money, often well in excess of any notion of a “fair” wage when reduced to an hourly rate. The times, they are a-changin’, but not without some kicking and screaming from the people who benefitted from these systems.

    I agree with Rhonda that a government mandated cap on income is probably a bad idea. That is hardly consistent with any notion of “free market.” On the other hand, I think REGULATING the market — such as by requiring full disclosure to the consumer/client — is absolutely essential. All the “small government” types who believe the goverment should not regulate or oversee the market? Well, I think that position is untenable given human history to date, certainly including the last 10 years. The “free market” works efficiently — it provides goods and services for the lowest prices — only when consumers are able to understand the costs and appreciate the alternatives. Given that reality, the mortgage industry is out in front with this new legislation. As far as I know, a selling broker has no obligation to disclose an “SOC bonus” to his client.

  8. This might all be for not – this year.
    The Republican Congressman from Texas said he is considering legislation that would delay implementing the Dodd-Frank Act.
    Could happen now that they are in control. This might help Eliz Warren so she can get her hands on it.

    But according to Rick Grant over at housing wire – he excepts the broker to come back Big time in 2011. So figure the best way to comp a loan officer and right size the pay for performance.
    Personally an LO should get paid more for bring in a purchase money loan over a refinance.

    • Hi Joe!
      Even if Dodd-Frank implementation is delayed, th Federal Reserve Board Rule goes into effect April 1, 2011. Brokers won’t ever go away and their numbers will grow again as the economy improves. I think the brokers will be able to make the transition just fine as they already made the “full disclosure” transition in 2010.

  9. Craig and Rhonda,

    E2O stance is that he believes he is entitled to earn as much as he wants to earn without having to disclose that hidden compensation to his client.

    The problem with this stance is that everybody’s opinion of how much he/she is entitled to is radically different! I have heard people tell me that they believe they are entitled to earn 2, 3, 4, 5, 6, 7, 8, 9, percent of the loan amount without having to tell the consumer that they’re earing this hidden bonus compensation from the lender by selling the consumer a higher rate. So a little quarter point here, a half point there might make one person feel guilty whereas another person can sleep fine at night taking 9 percent. As Craig points out, not all consumers are able to vote with their feet if the average random consumer doesn’t understand the costs and alternatives.

    This is where the federal government has stepped in and passed both the Federal Reserve Board new compensation rules and Dodd-Frank Wall St Reform which removes hidden compensation.

    Rhonda, there will always be dynamic tension between how much responsibility to put on consumers and how much responsibility to put on the person selling the product.

    We are moving away from caveat emptor (buyer beware) and moving towards caveat venditor (seller beware) in the mortgage lending industry. The reason we’re moving in this direction is because mortgage lending has grown more complex over time.

  10. Perhaps “forward” mortgage origination should become more like “reverse” …at least for first time home buyers, where they must go through conseling and pass a 10 question test (feels funny calling it a test) that shows they have some sort of grasp of understanding the proposed mortgage.

  11. Jillayne, I’ve never witnessed of “a LO entitled to earn …4, 5, 6, 7, 8, 9, percent of the loan amount.”

    Many lenders have caps on what a LO can earn–this has got to be an exageration…rate sheets don’t even go that high!

    Do you have any sort of documentation to this claim?

  12. Rhonda I think it would be a very sad day if the government demanded consumers go through a class to get a mortgage loan. I’d rather see loan originators owe elevated duties to their clients such as do not harm your client, full disclosure of all compensation, deal honestly and in good faith….and some of this is already spelled out in state laws for mortgage brokers.

  13. Remember, I’m exposed to hundreds of LOs every year. Consumers send me all kinds of stuff to read including GFEs from the predatory lending days with all kinds of fees scattered all throughout the GFE. I had a person sitting in the front row of a classroom filled with 80 students tell me he has no problem at all charging 6, 7, 8, 9 points on the back end.

    (This was when yield spread premium was earned by a broker. Some put this on their GFE, others simply left it off their GFE and when it showed up on the HUD in escrow and the consumer asked, “What is this YSP?” The loan originator would just lie and make up a false explanation as to what that amount represented.)

    He said he was worth that amount of money and felt entitled to it since it was allowed by the lender at that time.

    I have had other LOs tell me the same thing. They had absolutely no problem charging high overages. Of course the ability to go that high is gone now but LOs still tell me that they’re still able to earn 2, 3, 4, points in overage today that’s currently hidden from the consumer.

  14. How much is a used-house salesman/woman/R (capital R) Realtor worth per hour?

    Really, no kidding, I’d like your opinion. Thank you. Larry Y.

  15. Hi 3rd Gen,

    More experienced real estate brokers are worth more per hour as are brokers who specialize in a particular type of real estate where their knowledge runs deep.

    Not just number of years of experience but also the number of closed transactions per year. This would separate out the part time from the full time, career brokers.

    Part timers, in my humble opinion are arguably worth less per hour but I suppose there’s always an exception such as a person with many years experience moving from full time to part time retirement.

    Here’s an NAR survey that sheds some light into actual annual earnings:

  16. Jillayne, being “exposed” to mortgage originators and being a mortgage originator are two totally different things. When you refer to what you hear from your students, it makes me wonder about the overall quality of students you’re attracting to your class…I wonder if they are accurate picture of mortgage originators today.

    Just out of curiosity, did you ask Ken (E2O) if you could publish his email? I’m glad he had the guts to comment on this post… most LO’s will not, let alone one that’s been blasted with such tone.

    Consumers do need to be more responsible for themselves financially. FHA is all ready testing them on Reverse Mortgages (I believe they need 5 out of 10 correct — pretty pathetic). If a consumer cannot pass an fairly easy test to show comprehension about a mortgage, why should they have such a large debt? Just so that when they stop making their payments down the road, the mortgage originator can be blamed for originating a bad loan? For Pete’s Sake! I don’t get how you could NOT want more education for the consumer.

  17. E20 was anonymous and reads like emails and anon blog comments I get every day that sound like this: “I earn X in compensation. Now I will have to disclose what I earn to the consumer. How am I going to survive?”

    My answer is easy: Make the transition to full disclosure. Mortgage brokers did it in 2010.

    It was his choice to leave his full name here. E2O and I had a long and productive email discussion today off blog.

    I am exposed to a wide variety of LOs. In 2007 at the top of the bubble, it was only broker LOs. In 2010 it was a more consumer loan company mortgage banker LOs. The quality of LOs in 2010 is much higher than it was in 2007 at both the broker and mortgage banker level.

    Rhonda, I’m not convinced more mandated education for the consumer is helpful. Show me statistics from the first time homebuyer seminars that are required for state bond money that show those homebuyers had a lower default rate or a lower foreclosure rate compared with first time homebuyers using any of the low downpayment programs including FHA or USDA.

    Maybe for first time homebuyers but for repeat homebuyers? For people refinancing a fourth time?

    Why should they be required to pay for and attend a class that explains how not to get ripped off by their loan originator? How to read their good faith estimate? In my mind, this is why they pay their loan originator: for education on mortgage lending. I vote for higher educational standards and higher duties owed by LOs to consumers.

    • I’m not picturing the class being something on how not to get ripped off, however, how to read a rate quote or GFE would be a good thing. My earlier comment did state for first time home buyers.. however, I’ve had clients who refi’d over and over again promising to get their act together…and guess what, some never did. Seattle Bubble did an interesting post about foreclosures in our area that touched on folks who refi’d themselves into trouble.

      The cost would be no different than what borrowers getting a reverse mortgage pay, about $125 I believe. $125 would be a bargain to help educate first time home buyers IMO.

      I was “exposed” to mortgage originators for years as a title and escrow rep…but again, being exposed is not the same thing as doing the job.

  18. Jillayne, there is so much that is wrong with your post, I don’t even know where to begin. First, your attitude about what LOs are worth is just plain wrong. LOs are worth what the market will bear for their services. As always, ultimately a mortgage is the rate and fees which is all that any consumer has ever cared about at the end of the day. LO compensation has never been of concern to consumers.

    You attempt to make it seem like LOs are working 15 hours a week making $175k a year. I wish it were that easy. Most of the LOs who are in the upper tier of production and earnings work 60-80 hour weeks and are closed to being divorced. I know LOs who made $400k+ in 2010 and they are on the verge of nervous breakdowns from the stress and hours. Believe me, we earned EVERY single penny. I tried to take a vacation this year and I spent my entire week WORKING on deals.

    While it is true the barriers to entry are low, this is a job that is extremely stressful and requires many many hours of work at all hours. The reality is that the vast majority cannot and will never be top producers. For every LO making $150k+ a year, there are probably 50 barely putting food on the table. Most people are not cut out to be an LO, especially in this market.

    It is so obvious that you are completely removed from the day to day realities of loan origination. Dare I say clueless. As I have said before, those than can DO and those that can’t TEACH.

    Just as LOs sometimes reap benefits from overages and market improvements, we also bear a lot of risk. Every LO has done a deal for FREE or better yet, actually paid out of their personal pocket to close a loan. The earnings are high per deal because the risk of not being paid is also high. At this point, LOs bear all the downside risk, but none of the upside gain.

    After splits, most LOs probably make $1500-$2000 per deal. Yes, there are times when we get much more per deal, but typically they require more work or were larger loan amounts. Most LOs with self generated business don’t close much more than 2-4 loans a month consistently. After you have spent two months baby sitting a borrower to get docs, arguing with an underwriter, dealing with brain dead Realtards, worrying about being out of compliance because you used blue ink instead of black, you will think $1500 for a deal is slave wage.

    Many seasoned top producing LOs are wondering if this business is worth it anymore. Many have spent years developing referral based business and dealing with all the BS that this industry throws at LOs. Potentially having your income cut in half while having to work two or three times as hard is not appealing. Most LOs who make the kind of money you talk about have been in the business for years if not decades. It took me years of investment and goodwill towards my clients to develop the book of referral business to earn that kind of income. I go out and earn every single deal I close.

    Just wait until every LO is a glorified teller at the big banks and then you and all the consumer groups will be wishing all the professionals weren’t driven out of the business.

  19. Jillayne,

    Thanks for the post – it was entertaining to read. I remember reading about LO compensation reform a few months ago on this website (did you post that before?), with similar arguments against coming from Russ and others. I did not understand how this all worked before I read these posts, so you’ve at least informed one “consumer”.

    Regarding whether or not I care to know what LO compensation is and how it works – of course I care to know, if it’s something that’s potentially negotiable. I’m not the average consumer though. Russ is probably correct that the average consumer does not have the sophistication or inclination to try to understand these things if it’s a $2000 line item on a $400,000 bill.

    Anyway, thanks again for the informative posts and keep up the good work!

    • mojo, the problem is you are now a misinformed consumer as a result of Jillayne’s post.

      Simple question for you. You called every LO under the sun and narrowed it down to two LOs to handle your financing.

      LO #1 offers you 5.0% and zero fees. LO #2 offers you 4.75% and zero fees. Assuming all things being equal between #1 & #2, at what point does the LO compensation factor into your decision?

      Does it matter to you that LO#2 is earning $5k in income on the deal versus LO #1 who might be making $2k?

      Another question. Best Buy has TVs for $1000. Target has the same TV for $1100. who is cheaper? Suppose Best Buy was able to negotiate a deal where their TVs wholesale cost $400 per unit whereas Target’s cost is $700 per unit. BB’s profit is now $600 where Targets is just $400. Where does the resulting profit margin factor into your decision as to the better deal at the retail price? Is Best Buy required to lower their profit margin to $400 like Target and offer the TV at $800? Why not? Wouldn’t that be the “fair” thing to do for you as a consumer? As a consumer, do you think Best Buy should be required to “disclose” their wholesale mark up to you? Should the sales guy on the floor at Best Buy be required to disclose how much they earn in commission on each sale to you? do you care beyond your retail price for the item you are buying?

      • I understand your point. In your first example, good business sense would compel me to pick LO #2 over LO #1 even if I had an objection to someone earning $5000 for 15 hours of work.

        However, if I were equipped with the information to know what LO #2 was being compensated I could make an educated guess on whether or not LO #2 has any wiggle room in their compensation and I would potentially be in a better position to negotiate rates? On the other hand, if LO #2 were savvy they would probably know that they were the lowest offer on the block and they may politely decline to be talked down. I have actually never applied for a loan before so I don’t know – do LO’s even negotiate rates?

        I still don’t see a downside in having the additional information.

        • Mojo: Exactly! Gold Star for you. Like I said, it doesn’t matter. The terms of the loan are what you are paying. Could you attempt to negotiate lower comp on LO #2? Yes, but like you said, that LO wouldn’t lower it because he is already offering you the lowest rate in the market place. Ultimately, that is all you care about, not how much money he is getting.

          Yes, you do negotiate with LOs. It is called rate shopping. Basically, consumers call around looking for the bank/lo that is going to offer them the most favorable terms along with service and expertise. At no point in this exercise does the LOs compensation ever come into play because consumers care about their final terms, not what the LO is making.

          Loan officer compensation disclosure is a Red Herring. The one thing I do agree with Jillayne on is that you can bet once LO compensation goes down, the banks will just keep the profits. These rules and laws that are being passed in no way help consumers. In fact, it raises your costs because LOs will leave the business which reduces healthy competition and ultimately raises your cost.

          In my market, LOs made probably twice as much per deal originated (instead of making 1pt, 2pts or so seemed to be the norm) in 2010. First, more work was required and cost rose in other areas of the business. Second, less competition kept prices high. You no longer had to price really thin to be competitive since there weren’t many brokers left. The only comp is a handful of independent lenders and the Too Big Too Fail Banks who were raping their customers. I priced a loan this evening for a client and his quote from Citibank would be paying me nearly 3.5 pts if I priced it how they were. I guarantee the telemonkey phone officer at Citibank isn’t making 3.5% on that loan. Probably 30bps while the bank keeps the rest. I would do the deal at 2.5% and still beat their rate by .25% and have less fees. At no point, does he say, Gee Russ, you are making too much money… He says, I am so glad I took my buddy’s advice and called you instead.

  20. Buying a television is radically different than buying a mortgage. But go ahead and compare yourself to a television salesman if that’s the way you want to see yourself.

    Russ, the reason you don’t think it matters to the consumer (as to what you’re paid) is because you don’t want it to matter.

    Here’s how it matters.

    A consumer is going to pay a higher rate over the life of the loan to loan originator 2. LO#2s compensation is in that 4.75 rate and the consumer could have received A LOWER RATE from LO#2.

    I’d like to see both LOs sell the consumer on their compensation when all compensation goes onto line one of the good faith estimate. Why is LO#2s fees higher?


    Would your class to homebuyers and serial refinancing homeowners include instruction on how to negotiate the lowest fees from settlement service providers and lenders?

    The new GFE is suppose to help consumers shop for the lowest cost loan.

    Would your class help teach homebuyers how to get a lower rate from loan originator number 2?

    • Jillayne, you do realize that different lenders have different wholesale rates, right? In my example, I was trying to help you understand the difference between wholesale and retail. It is clear the wholesale/retail concept is going over your head.

      In my example, the 4.75% is better than the 5%. Plain and simple. The backend wholesale spreads DO NOT MATTER. If the consumer rate shopped the LOs to death as they should, the 4.75% is the best rate in the market place, regardless of the LOs compensation on the loan. No consumer with two brain cells is going to give a damn that the LO offering the lower rate is making more money than the LO with the higher rate.

      As I hope you know, different companies are able to negotiate better wholesale rates and some companies are just plain run better than others. It is entirely possible to offer better rates than competitors while also earning more money. These companies have no obligation whatsoever to pass that additional profit margin on to consumers in a fair and open market place which is basically what you are advocating.

      I routinely make more per deal than my counterparts at Too Big Too Fail banks while still offering substantially lower rates to my clients. In my nine years of originating I’ve never had a client attempt to negotiate my end compensation. They rate shop all day long because they know the terms of the loan are what matters, not my compensation. They don’t care if my comp is $1 dollar or $10,000. They want the lowest rate offered in the market place.

      In a competitive market place, it is nearly impossible for an originator to take advantage of a consumer. In my market, I know roughly where I need to price loans to be competitive, but also to maintain a reasonable profit margin. Any consumer who calls more than one or two LOs will quickly find out if any LO is attempting to gouge them as it will ultimately show up in the final terms of the loan being offered.

  21. Thanks, Mojo.

    The mortgage industry has done this to itself. Russ (and I know Rhonda has mentioned this before, too) is right about banks being the winners.

    Depository banks are going to be able to keep the profit they make after the close of escrow, if they sell the servicing rights on a pool of mortgage loans. In the past that bonus income was sometimes split with a branch manager who would then possibly share that with loan originators.

    After these new federal rules go into effect, depository banks will just keep that extra profit for themselves. I don’t think depository bank LOs are going to see much change with the new rules because they’ve already lost the ability to earn extra income to some degree.

    LOs who work for a mortgage broker are already use to full disclosure of all income.

    It’s the non-depository lenders (In WA State these lenders hold a consumer loan license. In other states they might hold a mortgage banking license but they don’t offer checking and savings) who will go through the same transition that broker LOs went through at the beginning of 2010.

    Not everyone will be able to make the transition. There will be lots of whining just like at the beginning of 2010. LO numbers will get smaller before they begin to grow again.

    As the numbers get smaller the LOs who are left will have the potential to gain a larger piece of the market share.

  22. “In a competitive market place, it is nearly impossible for an originator to take advantage of a consumer.”

    I HIGHLY disagree. Because we don’t have nor will we ever have a marketplace where each and every transaction is regulated. Yes lenders have cracked down on compliance because they were forced to. But in no way are state and federal regulators equipped to regulate to the degree that’s necessary in order for consumers to approach the market without being in a position to be taken advantage of. If you think the predatory lenders are gone you’re sorely mistaken. The consumer is at a one-down disadvantage and the loan originator is many steps ahead. There’s a knowledge/power imbalance and lack of regulators. I am not advocating for more regulators!

    Instead I am advocating for industry self-regulation of ethical conduct to do the work that the state regulators will never have time for. Once the industry self-regulates ethical conduct the government will start backing off our industry.

    “In my market, I know roughly where I need to price loans to be competitive, but also to maintain a reasonable profit margin. Any consumer who calls more than one or two LOs will quickly find out if any LO is attempting to gouge them as it will ultimately show up in the final terms of the loan being offered.”

    I HIGHLY disagree. Bait and switch advertising is alive and well in 2011, as is LOs who give out a cost estimate sheet instead of a GFE in an attempt to not be held to the fees quoted on the GFE.

  23. Russ if you want to make 2.5 percent of the loan amount per transaction, then go ahead and put that on the Good Faith Estimate come April.

    If indeed it doesn’t matter what LOs make, then I’m sure your customers won’t ask any questions about your compensation.

    Please be sure to get back to us in May with how that’s going.

  24. Russ,
    I’ve had this argument with Jillayne so many times as well… she either doesn’t get it or doesn’t care to get it.

    If a consumer can lock in 4.75% with $2000 in closing cost with one lender who’s being paid $3,000 or lock in 5.000% with $2000 in closing costs with another lender who’s being paid $2500. Is 5% the better deal because the lender is being paid less? Absolutely not–what sense does that make?

    Jillayne, if I created a test…that might be a question on it for borrowers to determine.

    • Yeah, I know. I don’t know why I allow myself to get dragged into this mindless drivel anymore. I think the difference is that Jillayne feels the consumer is entitled to an even lower rate because better lender is still making more money.

      Of course, any rational person knows that the free market doesn’t work that way. If someone is offering consumers the best deal in the market already and can earn more money doing so, no rational business entity is going to further drop their prices. That violates 10th grade economics.

      I always find it hilarious that mortgages is one of the only businesses where we legally are being forced to disclose our wholesale mark up which is basically what is being advocated.

      I would agree with Jillayne if LO comp had no tie whatsoever to final rate and terms. For example, any Realtor can sell or buy any house so you truly are paying for the individuals services/expertise because any licensed Realtor has access to the MLS.

      If the mortgage world had an MLS like system that contained the wholesale rates of EVERY SINGLE conforming mortgage lender and the wholesale rates never varied regardless of what broker/banker was used, then it would make sense that consumer would negotiate an upfront compensation structure for an LO since that is the only thing that would vary from deal to deal. Any LO could get the lowest terms available and the one who figures out how to do it the cheapest will prevail. Right now, the lowest terms are not necessarily tied to the the lowest compensation. As you know, the relationship between rates and compensation is not linear and varies depending on your access to wholesale lenders and what deals your company has negotiated. The only thing a consumer can use to shop is the actual terms of their loan which as I have proven is the only thing that matters to them.

      • That’s something that we know because of actually walking the walk and Jillayne has never been a mortgage originator that I’m aware of.

        She reiterates that she gets her information about LO’s from being “exposed” which is not the same as being “immersed”.

        I’m tired of trying to explain it to her.

        We can have the same scenario of two LO’s where one is quoting 4.75% at 0 points and another at 5.000% at 0 points and both are being compensated equally. The bank is who is keeping the overage and guess what, the compensation regulations will create just that. HOW has that helped the consumer? This will not translate to lower rates or cost. The consumer will only opt for the lower rate if they shop and are able to find that person (and again, lower rate does not always translate to closed transaction).

        I think we’re going to see less competition, higher rates and an increase in mortgage tellers who are underqualified…they just need to get that application into the mega-processing center and hopefully the loan will close. The mortgage teller won’t really care because they’re compensated so little per transaction and they’re fed so much gravy from the big bank, if a deal or two doesn’t close, it’s no real sweat off their brow. Their job is to keep pushing those aps through.

        How do I know this? I’ve had LOs from major banks tell me so.

        Lack of free markets (competition) is never good for the consumer.

  25. Rhonda, if all compensation is shown on line 1 of the GFE then the better deal for the consumer and what they’ll want is the 4.75 rate with 4,500 total fees.


    If a consumer has both those GFEs in front of her with all LO compensation on line 1, please explain why the consumer shouldn’t care about all compensation when the consumer IS paying that compensation in one form or another:

    The consumer pays on a purchase money loan if the sales price is jacked up 3 percent to cover the “3 percent seller concessions”
    The consumer is paying the compensation in the form of a higher loan amount over the life of the loan if the consumer rolls closing costs into the loan amount.

    Rarely if ever does a consumer choose not to finance closing costs nowadays.

    So if the consumer were educated, the consumer will make an informed choice on why they should care.

    Smart LOs will begin educating consumers on why they should care.

  26. What are you doing?

    I just skimmed the comments and paid no attention to what you wrote until tonight.

    What were you thinking?

    Yes, you have to love the business. That’s what it’s all about. It’s about the juice, and ability to get a deal.

    We make money by making deals. Real Estate is not a commissioned sales position. No one with half a brain is in mortgages, or Real Estate for the commission. If you are, and you make that $233 you are a crook. You are a swindler, low life, scum. These are the people we need to jail.

    Real Estate agents, Loan Originators, and especially the Brokerages that encourage this random commissioned sale thinking need to be put out of business.

    Sell cars, and finance them. That’s what commissioned sales is for.

  27. Good Morning Jillayne,

    I was addressing you.

    Yesterday I was having a conversation with a nice young man who has been in the Real Estate business for about six years. He was networking the Brian Buffini way. He has four listing, all short sales, and they are all selling. Banks are doing BPOs to tell agents what offers they will accept. Isn’t that great? No need to think about what a property is worth any more, banks will tell you what they will accept.

    When did Real Estate get so screwed up? Why didn’t I notice? Those are probably better questions that I should have.

    Anyway thank you for the article. It put the mess we have into a perspective.

  28. Hi David,

    Thanks for stopping by. Regarding BPOs….BPOs in this state are done by licensed real estate brokers so in a way, Realtors ARE still setting the prices but they must be supported by comparable sales.

  29. Hi Russ,

    The consumer doesn’t have access to wholesale rate sheets. Since LOs took advantage of that fact (as Craig pointed out) the government steps in and puts a cap on compensation.

    If the consumer knows he/she can get a lower rate and lower fees, why wouldn’t a consumer want both?

    Yes, yes I know sometimes the person/company offering the lowest rates and fees also offers the worst customer service but sometimes not. Look at how successful WalMart is. By the way I have only shopped at WalMart once in my life.

    “no rational business entity is going to further drop their prices. That violates 10th grade economics.”

    And yet companies DO drop their prices in order to make something rather than lose the deal. And those companies, in order to remain competitive, make other changes to their business operations to run more efficiently, which is one of my suggestions for E2O. I think I learned that in community college econ.

    Russ why don’t you go ahead and take a crack at writing a paragraph or two of advice for E2O and other LOs like him who are trying to figure out how to survive come April 1, 2011.

  30. Hi Rhonda,

    Positions I’ve held in the mortgage lending industry include: Processing, Underwriting, Origination, Compliance, Training/Education, Foreclosure Specialist.

    Yes people will go work at depository banks for awhile. And then originators will migrate to mortgage bankers, and then they will open their own brokerage shops. We work in a transitory business. You are an outlier because you work in your family’s business. That’s why you will probably stay in one place through your mortgage career. The majority of LOs move around for many different reasons, compensation is only one of them. Things will never stay static; mortgage lending is forever changing.

    E2O needs to change with the industry or leave and go do something he loves. I would like to hear your advice to E2O and other LOs who are very upset at having to disclose their overage income.

        • Were you originating or working in a back office capacity? Just because you worked at a mortgage company doesn’t mean you understand the realities of originating. How many loans have you closed and when was the last closing? Originating a handful of mortgage loans in the early 90s is not the same as originating loans in 2011.

          As has been pointed out, there is a reason most LOs fail miserably. It is a very tough job. To be honest Jillayne, your post sometime come off like a failed loan originator. I see folks like this all the time. They thought being an LO would be super easy and they fail miserably so they take the attitude that successful LOs make too much money because they get jealous that people who may not necessarily have the same educational credentials are much more successful.

          I remember coming across a couple of underwriters at an old mortgage company who tried to be an LO and they washed out big time. Couldn’t hack it and couldn’t bring in business. To get back at the LOs who were doing well, they would beat the crap out of each file in underwriting. They would constantly bad mouth the LOs who were making well into the six figures and bitch and moan about how much money the LOs were making.

  31. Hi Russ,

    I enjoyed working in mortgage lending and the only position I knew wouldn’t fit was underwriting because I missed working with the Realtors so I left and took a sales position where I worked my way up to number one in Realtor market share in my territory.

    I understand the concept of Nietzsche and his theory of resentment. No, I don’t resent LOs and the money they make. I love what I do now and had the best year of my career in 2010 as a business owner.

    Yes, when I blog I take a sharp edged tone with loan originators. Why? Not because I resent them but because I am so tired of hearing how they don’t want to be honest with their clients yet at the same time they want to be looked up to as that of a professional who DOES have those duties.

    Many of the LOs who don’t want to tell their customers about their overage income left the mortgage brokerages and went to work at mortgage banks.

    Not all LOs are going to have a problem in April when all compensation is shown on line 1.
    Some will.

    So instead of you and Rhonda creating a straw man fallacy, let’s hear from you and Rhonda.


  32. Dear Julliane Jillayne,

    Though mostly I agree with you, on this I have to say you’re off the mark. You are not taking into consideration the many hours of marketing, not to mention the costs involved with doing such, and let’s not forget about advertising as well. Also, I have spent the last year and a half learning this phenomenon known as Social Online Marketing. While yourself, and Rhonda have this down to a science it takes me many hours, and I still have much to learn. After all, our primary job is to get the phone to ring in the first place! Yes, I am a salesman and I sell money and a service! This is the way things work in a capitalist economy, least wise, until the government comes in and attempts to fix a problem that no longer exists. Yes there were a few bad apples that did bad things but they went away with the licensing of Loan Officers , or at least went to work for a bank where they would be exempt from back ground checks and licensing. Then to say that I only work on a loan for 15 hours is ridiculous, and inaccurate to the extreme. It often takes me weeks just to get the borrowers problems resolved sufficiently so I can begin and take their application! Once in a great while I will get a loan that I can just run through the system and everything goes like clockwork, but this is a very rare instance. The more common scenario has me taking care of one problem after another that pops up unexpectedly.
    During the past 17 years in this business I have always done what’s the best for my client(s). It was the only way that I could compete against the advertising budgets of the big mega banks. I need to give better service and be an expert in my field, and NO, I do not open checking and savings accounts! This Franks – Dodd’s Law that is going into effect April 1st is the result of B of A, Citibank, Chase, Wells, and GMAC digging deep into their pockets and hiring the best lobbyist money could buy who in turn contributed heavily to the re-election PAC’s of Barney Franks & Dick Todd. There is not one good thing about this law. It certainly will not lower costs to the consumer. Banks will just keep the money they once had to pay to the Loan Originator. Take a look at who the biggest campaign contributors are, I named them above. Also, since this legislation was designed to put us out of business…we who attend your classes to stay licensed…well maybe you can teach the bank teller/loan officers how to do loans after we are gone starved out by this business. This law is going to make it more expensive for the consumer because there will be no competition. Like Frank Garay & Brian Stevens said in an article “who is going to do the loans when the economy recovers

  33. Hi Steven!

    Good to hear from you.

    “Yes, I am a salesman and I sell money and a service!”

    Loan origination is transforming from being a retail sales job to that of a professional. The big banks will never want this for LOs. The big banks win when LOs have less power, less responsibility, fewer educational requirements because they can hire green, pay low, and keep their expenses down in order to maximize profit.

    Some career LO veterans like Rhonda have always taken on the role of counselor and fiduciary and less of a “make the sale” type of relationship with her clients.

    It’s a subtle different in language and cognition but makes a huge difference in everyday practice.

    A salesman wants to close the sale and close the deal.

    A counselor/fiduciary wants to first listen to what the client needs and match product and service to exceed his/her client’s expectations. There is no selling that takes place. The client is given all the facts.

    Hiding facts in order to emotionally coerce a customer to buy is manipulative.

    Helping the client learn all the facts so the client can make an informed decision is using logic to help persuade a client to make a decision that best matches his/her goals.

    I am trying to help E2O, Russ, and Rhonda understand that by educating the client on all his/her options, the client can make an informed choice.

    Russ thinks that if the customer were to have all the facts, the customer would just get confused and the customer doesn’t need to know that he could receive a lower fee. Indeed why would any salesmen tell his customer “and my fee is negotiable so if you’re quoted a lower LO fee by my competitor, I will meet that price!” No salesmen wants to be forced to do that and no company would want their employees to do that (though I’m sure some do to keep the deal.)

    So the federal government steps in and mandates all hidden fees become transparent so the customer can make an informed choice.

    The federal government hasn’t done this to the industry. The industry did this to itself.

    Russ makes a point of saying “the customer would be confused if he knew about the hidden bonus overage income.” No true fiduciary would be allowed to hide bonus income from his/her client. The client must be told everything. In WA State only mortgage broker LOs owe these high duties to their clients.

    Eventually all LOs will become fiduciaries or there will be a split between high duty-type LOs who will have the ability to earn more (if they self-regulate ethical conduct) and salesmen-type LOs who will owe low duties but be paid a lot less.

    I am a strong advocate for the fiduciary model.

    • Jillayne:

      Being a fiduciary and understanding that we are in sales is not a conflict. I think you definition of sales/selling is different from most real world LOs. You can be the most knowledgeable and ethical LO but that doesn’t help you if you can’t close a loan if were taped to a door.

      I always put my client’s needs first. I frequently spend hours, if not days working with clients to correct dings on their credit report so they can qualify for conventional loans with better terms that pay me less in compensation when I could easily just put them in an FHA loan that pays me 3x’s as much in compensation. I often close loans for free and have actually paid to close a transaction on numerous occasions. Please let us know if you would teach your class for no compensation whatsoever.

      Selling in my world means demonstrating to the client that my knowledge of available financing is superior along with the customer service I provide. Not too mention just simply offering better terms on the deals which at the end of the day is the most important piece.

      I’ve never had an issue disclosing my compensation. I just closed a multi-million dollar mortgage and I charged every dime I earned on it upfront in points and the total comp was more than some people make in a year. My client saved $4k a month and I was the only LO who could get it done. I worked on that deal for damn near 6 months before it closed due to some quirky issues with it.

      I have an issue with disclosing compensation when it is being forced on us by government bureaucrats who don’t understand how the mortgage market works. Especially when that compensation disclosure won’t do a damn thing to benefit consumers. Please name ONE government regulation in the mortgage market that has LOWERED costs for consumers. HVCC jacked up the cost of appraisals. The new GFE is joke and has made it even harder to shop for mortgages. All the other BS regs we follow now have caused prices to go up just so we can remain compliant. Hell, here in IL, EVERY single transaction costs about $200 bucks more than it should in closing costs due to SB1167 which actually requires MILLIONAIRES to get credit counseling just because they want an interest only mortgage.

      The problem is that all these laws and regs sound good on paper to the misinformed and do nothing to help consumers. That is my problem.

      If you have actually originated a mortgage, you would know how confused consumers are about this stuff as it is and simply adding to the pile of mindless disclosure drivel isn’t going to help. PERIOD. Especially when the disclosure doesn’t have squat to do with the retail price of their mortgage and the disclosure is something that no other business is required to make.

    • Jillayne (sorry for the “in post comment”) but… this is how RCG is set up currently…

      I DO understand making sure the client is aware of their options with pricing a mortgage. I want it to be their choice. Unfortunately they will be losing options with pricing of a mortgage since LO’s will only be able to be compensated from either the lender or the borrower, but not both. This means that they can either have a mortgage priced with points or without points…but nothing in between. Pricing doesn’t always fall that way–however this may change and I’m sure it will favor the lenders/banks…not the consumer and not the mortgage originator.

      Thanks Congress! NOT

      Jillayne, I’m trying to help you understand what a hardworking, honest mortgage originator is going through these days…at least from my perspective.

  34. Last night I read the article on the Mortgage Fiduciary site. Is that your site? The other site I linked to CE something.

    In the future an online entrepreneur will provide e-loans that close in a week. There is no reason for fiduciary responsibility because lenders will make business decisions based on the value of the asset. It’s kind of like hard money today on steroids.

    The only reason you are having this discussion is that loan amounts still far exceed asset value. My wife and I are heading to Miami in a few months to look at that market place. In my opinion Las Vegas, and Miami will become more of the norm, with cash as king, and “loans” getting a good return on investment dollars.

    That is way off your topic, but I do like the statements you’ve made.

  35. Hi David,

    Yes, I post a similar version of almost all my raincityguide blog articles on first before posting here. The comments on the NAMF site are different than the comments we get here.

    We’ve been promised online e-loans that can close in a week since the late 1990s. Everything moves much slower than we’d like. The federal Mortgage Disclosure Improvement Act prohibits a fast close now. I think mortgage lenders will still have many different ways of being in business: broker, banker, consumer lender, credit union. Yes the numbers will shrink in some areas but then they’ll grow again. Our industry is cyclical that way.

  36. Russ being a fiduciary doesn’t mean the loan originator won’t know how to get a deal closed. The opposite is true.

    Yes, all the disclosure forms are challenging to explain to consumers. Do you want to be done with all the disclosures? One way to do that is to have a simple consent form that your client would sign….but then the burden of care for that client would shift to you, the loan originator.

    Banks don’t want that kind of liability so they will never argue for higher duties owed to the consumer.

    So the industry starts at the other side, at the broker level, the source furthest away from the mortgage money and the person acting as an agent on behalf of the client to shop the market. Slowly, slowly through case law what we’re going to see is that a broker LO has time and time again acted as an agent because the broker knows so much more about the market, wholesale v. retail rates, what’s in those disclosure forms, etc. A very smart attorney named Andrea Negroni has written about this extensively on behalf of the Mortgage Bankers Association.

    Part of being a fiduciary is that there is no hidden side agreements or bonus money coming in that a loan originator’s client is not aware of. All facts are explained to the consumer, whether or not you agree or disagree on its relevance.

    SLOWLY, loan originators are being turned into fiduciaries at the broker level (In Washington state this is already a law for broker LOs) and next will be the mortgage banker level. Retail depository bankers will kick and scream and only submit when a gun is held to their head but it will eventually happen.

    I am still highly interested in hearing your ideas and Rhondas ideas for E2O and other LOs like him who want advice.

  37. Jillayne, I want common sense disclosure, not disclosure just to be killing trees and disclosing information just to be disclosing it.

    Please tell us if you feel it necessary to disclose your operating profit of each class you conduct? Do you think it would make sense that every student of yours receives a disclosure listing your wholesale to retail markup? Let’s say you charge $100 bucks a person… would you want to fill out a form that tells your students you are grossing $90 a person? I mean, how much could it really cost to run a few copies of some power point slides? Do you really deserve all that money for what… a few hours of work at most? All you are doing is rehashing material from previous classes, right? How about if one of your students wanted to negotiate how much you personally made from each class independent of the retail cost that you are charging for the class?

    I don’t view overages as a “hidden” bonus. Agreements businesses have with their wholesale suppliers are of no business of consumers. I don’t think a single industry other than mortgages would accept the disclosure that we currently have to operate under.

    Let me provide another example. You have two hobby shops. Hobby Shop A goes out of business and sells all of its inventory to Hobby Shop B for pennies on the dollar. Hobby Shop B has always had the lowest prices in the industry. Does Hobby Shop B now need to lower their prices further because the cost of their inventory went down? Does Hobby Shop B owe it to their customers to disclose that they are making larger profit margins than any other hobby shop since they acquired this inventory at dramatically lower costs?

    I can’t give anyone advice as I don’t know exactly how changes in LO compensation are going to affect us yet. Our wholesale partners have yet to tell us and we haven’t really figured out yet exactly how we are going to handle LO comp. What people like E20 are concerned about is they have spent years developing a business and now they are being told they can’t earn money. Many LOs are questioning if the resulting income from the changes will merit remaining in the industry.

    All we can do at this point is go with the flow. Who knows, it may further drive people out of the business and we may be even making more money. I just know most of the PROFESSIONALS are not going to work for 50% less while doing two and three times the work. Consumers certainly aren’t going to benefit.

  38. The only reason there is any discussion about Loan Origination commissioned sales is that after we lost the Housing market no one wants to turn around and kill the service sector.

    When you look at the jobs market it’s easy to see that we are churning out the same old tired servicing jobs that keep America from growing economically. Banking is one of those dead industries.

    I think that General Partnerships, and Real Estate Investment Trusts will take over where banking failed. There is no reason to keep giving lenders interest income that could be better used for people’s retirements.

  39. Tonight I read Russ’ comment because of you comment.

    Holy Cow!

    A mortgage is a thirty year promise to pay. It’s not a Hobby Shop to most people. It’s not a small purchase like a TV or a car. It’s a person’s home.

    I think the comments here speak louder than the article.

  40. Russ, you make a very good point regarding the wholesaler and retailer pricing relationship and how it is not necessarily anyone’s right to know. That relationship is found in virtually everything we consume. One of the challenges with LO’s working in a classical fiduciary relationship is that the industry is fundamentally structured with incentives that undermine the role of a fiduciary. It’s a catch 22.

    My spouse has a very good professional relationship with a few loan officers and occasionally we are privy to rate sheets. If we were in the market to refinance I am cognizant enough to know that until we choose to lock the rate there is a distinct possibility that the LO may make more or less (and that we also will pay more or less) than when we started the process due to market fluctuations. If they make more, I really could care less provided my rate is the same or about the same.

    There is substantial murmuring/talk regarding the upcoming changes this Spring and how that will impact compensation.

    Being in the escrow business affords us an active role into the lending business that is second to none, although with some limitations. One thing that I’ve learned over the years (and been humbled about) is that it is impossible to fully appreciate one profession from the other without fully walking in the other shoes as a licensee. That isn’t to say we have not worked with real jerks in lending, trust me, we have.

    Great discussion.

  41. David and Jillayne, Russ is not comparing being a mortgage originator to the other fields, I believe he’s just trying to illustrate that, as Tim points out, the difference between wholesale and retail pricing and that various wholesalers may pay differently (for example, if we have very little lock fallout, they may offer 0.125 better in rate or fee) or that some mortgage companies may offer a more attractive split or compensation package to a mortgage originator they’re trying to recruit, retain or reward – should this automatically go to the consumer?

    I’m so thankful that Tim, someone who runs an escrow company, has chimed in on this post…and that he understands that his LO might make more than one down the street, but if his rate/cost is the same or better than the LO who is paid less, why should he care?

    Consumers can lose focus of what’s important if they only focus on the LOs compensation.

    Jillayne, what if your students selected instructors based on who made the least amount of profit? (No, David and Jillayne, I’m not comparing my field to Jillaynes).

  42. I just remembered why i don’t comment here. my comment got tossed.

    I understand the pricing, or wholesale and retail. At any time a Loan Originator looks at a computer screen and gets about 35 rates, with fees, from diffentent lenders. The loan Originator, and only the Loan Originator gets to see that rate sheet. In Real Estate a consumer looks on line and does a detailed analysis of the home purchase.

    That doesn’t matter. What does matter to me is that if I got a back end payment in a Real estate transaction I would have to put it in writing and have every one sign. Even then I could be sued because the consumer may not understand.

    With loans, Loan Originators can collect as much as they can get away with, and not disclose?

  43. As a lay person following this discussion, I have a basic question: if a LO originates a $800,000 loan or refinance versus a $400,000 purchase loan or refi, assuming hypothetically he puts in the same amount of time for each deal, does he make twice as much on the larger transaction than the smaller ? If so, isn’t the higher priced deal subsidizing the cost of the lower priced transactions and how is this fair?

    And please do not say the higher priced deals are twice as much work.

    • Generally speaking, you make more on larger loans. Consumers with larger loans also typically will get more competitive rates since mortgage pricing is based on percentages. The reality is that it costs just as much time and resources to close a $100k loan as it does a $1 million dollar loan. 1% of $100k is just $1000. 1% of million is $10,000. Which one would you rather spend your time on? With that said, there are times where you make less on larger loans.

      You are correct that closed loans subsidize deals that fallout. This is also something Jillyane doesn’t seem to understand when it comes to LO compensation. LOs are not compensated unless a deal closes. We spend an inordinate amount of time working on deals that don’t close for a variety of reasons. As a result, the deals that do close have to subsidize the ones that don’t. So yes, it may seem earning a couple of grand for 10-15 hours of work seems like a lot, but you also have to factor in the other 10-15 hours of work where we weren’t compensated. There is a risk reward factor built into the compensation levels.

  44. Hi Rhonda,

    I have never advocated that all profit or retail mark up just go directly to the consumer.

    Instead I believe that all compensation should be disclosed to the consumer so the consumer has all the information to make an informed choice.

    My advice to E2O and Russ and all LOs is that when April 1st comes around just go ahead and put alll you want to earn on line 1 of the good faith estimate. Go ahead and add a markup for profit but put it on line 1. Now the true retail price will be shown to the consumer.

    Russ doesn’t think the consumer cares about hidden bonus LO compenation. I disagree. I think consumers will care.

    Time will tell. But if you want to make X, just go ahead and ask for it.

  45. Rhonda asks, “Jillayne, what if your students selected instructors based on who made the least amount of profit?”

    Hi Rhonda. Some people DO choose to take free classes. For example First American Title and other title companies offer Realtor clock hour classes for free. The topics are title and escrow centric and taught by Firstam staff. I can’t compete with “free” which is why I just go ahead and avoid title and escrow topics. I charge a higher per person rate for my Realtor classes than the average course provider. There’s plenty of business for all of us.

    There will ALWAYS be many different ways of doing business in a capitalist economy. Companies like Lending Tree and Quicken have chosen a low price business model. But any consumer who does a simple google search with those company names and the word “complaints” will see that low prices don’t always mean good service.

  46. I just received an email from a mortgage company here in Seattle offering 90 percent commission splits to loan originators. This is one way of doing business.

    It will be interesting to see what kind of support services would be CUT from this company’s business model in order to attract the number of LOs needed to support the company’s profits.

  47. Michele G,
    that will totally depend on the LO…it can range quite a bit and you should shop. Some may charge thinking they should earn a certain percentage and some may feel that a certain dollar amount is fair. It varies. Ask the LO upfront how they base their compensation and why. If they say the bank or their employer only allows them to make X, still check the rates/cost because I’ve found that some of these lenders/banks are simply not paying the LOs, offering higher rates (at a lower cost) and keeping the overages for the bank/mortgage company.

    When you’re shopping for lenders, one thing you should look at is what the LO is quoting with rate AND fees… also be aware that rates change constantly so you need to shop at the same time (within minutes) and give each LO the same critieria. What is also important is IF the LO can close the loan, how upfront are they (jumbos are still a bit more challenging than conforming loans).

    Good luck!

  48. Hi Russ,

    “You are correct that closed loans subsidize deals that fallout. This is also something Jillayne doesn’t seem to understand when it comes to LO compensation. LOs are not compensated unless a deal closes. We spend an inordinate amount of time working on deals that don’t close for a variety of reasons. As a result, the deals that do close have to subsidize the ones that don’t. So yes, it may seem earning a couple of grand for 10-15 hours of work seems like a lot, but you also have to factor in the other 10-15 hours of work where we weren’t compensated”

    I understand this.

    Paying LOs ONLY when a loan is made means lots of loans are going to be made that shouldn’t be made when underwriting guidelines get thrown out the window.

    I think it would be much more fair to pay LOs by the hour and once LOs become fidicuaries, you can then charge by the hour for the work you do when a loan does not fund. We are quite a number of years away from something like this but it is arguably unfair for other people to pay for your time when someone else is getting that service for free.

  49. A home inspector used to be able to do the repairs for defects they found. No more, conflict of interest. If a Real Estate agents collects a side fee for staging they have to disclose that. If there is $500 added to the Real Estate commission every body needs to know. In escrow no one gets paid anything that isn’t on the HUD.

    It seems to me that Loan Originators are way behind the curve on disclosure of compensation.

    You can talk ethics all you want, but it seems to me that there are a hundred ways a Loan Originator can finesse the system in favor of a higher compensation. I know for a fact people certainly do care today if they are paying more for a mortgage than they needed to at the time of application.

    • David:

      The difference is that the Realtors are not marking up from wholesale to retail like an LO. The Realtor compensation is truly a fee for a service provided.

      Consumer shop for mortgages by looking at who offers the lowest rate/fees. PERIOD. All the other stuff is just window dressing. The LO compensation isn’t listed on the Note.

      LOs will never be paid hourly, just like Realtors won’t. THe reality is that the costs associated for fairly compensating for services performed are prohibitive for most consumers. Could you imagine what would happen to Realtor comp if consumers had to pay it out of pocket outside of the transaction, especially buyer’s agents? It would fall like a rock. Right now, the only reason Realtor comp is even tolerated is because it is essentially financed.

      Say an LO spends 5 hours working on a deal for a consumer. It is determined that the LO is worth $100/hr. What happens if that loan is declined due to something out of LOs control – say appraisal. Most consumers are not going to pay up the $500 bucks or whatever the bill happens to be. I for one don’t want to be in a position to have to collect debts on dead deals. The way it is right now, I take the risk of potentially not being compensated and my compensation levels essentially take that into account.

    • I actually have had people offer to pay me for my advice without a mortgage being originated. As flattering as that is, I’ve never accepted. I just ask for them to remember me when they are ready for a mortgage… the compensation structure of mortgage originators is totally flawed. We should be paid hourly by the consumer… some pay more and some pay less — similar to how an attorney is paid. Consumers would really have their ducks in a row (all their paperwork together, questions ready, etc.) if LO’s were compensated that way. Some loans, for clients who require very little help, probably wouldn’t cost that much. But…I really don’t see that happening.

      Jillayne, do you know of mortgage originators who are charging hourly anymore? I don’t see how it would be possible with the 2010 GFE.

  50. A Real Estate agent isn’t supposed to buy a short sale to double escrow for a profit without disclosing. The language that a Real Estate agent may be making the purchase of this property for a profit was shot down years ago. If the intent is to flip the property it’s best to do that as an individual.

    Real Estate agents can charge by the hour as consultants. Agents can, and do, charge flat fees to list, or write Real Estate transactions.

    Mortgages will be the same. Banks will have a flat $500 fee for doing a loan app. You can finance the fee the same as flat fee Real Estate Brokerages can agree to be paid at closing. The question is why any one would wait.

    Now if some one does want to pay more for a menue of services then that would be different. That’s where we are headed.

    The commission is the same risk most agents take when they take on a client. Putting people into the car for a tour of the city, or taking a listing that will be months, or years to sell is a risk we all take.

  51. Dave:

    RE agents are not actually selling a tangible product that is marked up from a wholesale price to a retail price. Again, LOs get mortgage products from banks on a wholesale basis and mark the mortgages up to a RETAIL rate which is what consumers are shopping for. RE agents are service providers and any agent can help you buy any house. Many LOs seem themselves as service providers but at the end of the day we do actually provide a tangible product which is the mortgage. Furthermore, all LOs do not have the same access to all mortgages at the same rates. This is the big difference between LOs and Realtors even though some aspects of both professions are similar.

    I would only advocate what you and Jillayne preach if every LO had access to the same wholesale lenders and same wholesale pricing. Right now, that isn’t the case. Different lenders/LOs have access to varying depths of loan products and wholesale pricing so the mark up is not the same and has no bearing on the RETAIL interest rates that consumers ultimately pay.

  52. Jillayne,

    I took this quote out of your response to another, “SLOWLY, loan originators are being turned into fiduciaries at the broker level (In Washington state this is already a law for broker LOs) and next will be the mortgage banker level. Retail depository bankers will kick and scream and only submit when a gun is held to their head but it will eventually happen.”

    This is maddening…this is the same State that will not let those of us who are licensed Financial Planners, include that on our card. In fact we have to hang up our license which was considerable harder to obtain than a license to do mortgages. Yet you told me in almost a high brow manor that because I said I was a salesman you replied that Rhonda and others were moving away from that mentality and taking the position as an advisory (Oh Really, and here all these years that’s what I thought I had been doing after listening to what the client(s) was trying to accomplish. Further more I would ask you to refrain from saying we are kicking and screaming, and you have used the work crying as well. This is something that children do and I can’t help but feel at times you see your self as the being over us, the “wise Mother” that knows whats best for the industry. If your livelihood was being legislated out of business I think we would hear you crying at the top of your lungs. Another thing, I find the remark that someone would have to hold a gun to my head to get me to do the right thing as tabloid sensationalism designed to spin up the uneducated consumer. STOP IT!

    There is much more going on here than just some bad legislation. I am writing a paper on this that I will publish soon but at has to do with the existence of the Federal Reserve itself. The subject is very deep and one has to take a look at 100 years of history. We are at a pivotal point right now in the United States and what we decide will be remembered for the next 100 years so we had better get it right, and I see us doing the same things that have failed horrible in the past. The Fed has primary obligations to its shareholders while at the same time it is acting as a regulator. I am starting to listen to what Ron Paul has to say about phasing out the Fed and replace it with the United States Treasury. This is where the problems lie Jillayne, not with a Loan Originator earning an extra .250% or maybe even a .500% if they are lucky

    I ask you to please stop publishing information that confuses the consumer what the real issue is: How do we work our selves back to a long term sustainable form of government that makes the hard choices and is willing to endure short term hard ships for the long term good of the Country.

    If I hear to show my commission in section one of the GFE one more time I truly am going to be sick because it doesn’t matter what I make. I could be making a 2% loan origination fee on every transaction and still be less expensive than many lenders that change junk fee’s galore. another wards I make twice as much as them but under your logic the consumer should go with the other lender. You are not making sense on this issue and I find that so strange because I normally read your work and agree with what your saying.

    One last thing. You tell Rhonda Porter that you originated mortgages in the late 1980 and early 1990’s. I remember the early 1990s well because that’s when I entered the business. It was the best of times and life was good. I used to place a small ad in the Seattle times advertising my rate and the phone would ring off the hook. I would decide which two loan applications I was going to take that day. back them it would take just a few hours to complete a loan application and turn it in. Things are so completely different NOW so did you really – really work as a loan originator? The answer is NO by today’s standards

  53. Hi Steve: “I ask you to please stop publishing information that confuses the consumer”

    I have heard directly from three consumers this week who have read this entire post. Two asked for referrals from me to a loan originator other than the LOs who are commenting in this post because they didn’t like their tone and the way the LOs were talking to me. All three consumers understood the mortgage market, wholesale and retail markup, and licensed v. unlicensed loan originators before they even called me.

    If you want to write a book that helps consumers, go for it.

    Steve says “another wards I make twice as much as them but under your logic the consumer should go with the other lender”

    No, this is not what I’m saying. I am saying go ahead and make whatever you want to make but tell the consumer everything. The consumer now has the ability to make an informed choice and can shop with all fees shown on line 1 and no hidden compensation.

    I am completely fine with letting consumers shop for the best deal. The lowest rate is not always the best deal. The lowest fees are not always the best deal. Service is worth paying for….if the value is there. If the value in the service provided is not there, the consumer will shop rates and fees.

    There will always be someone else willing to do the deal for less. I’m not advocating that alll LOs cut their fees! This is a long blog post with lots of comments but I have said this many, many times!

    MAKE WHAT U WANT TO MAKE but tell the consumer all the facts.

    Those who keep preaching the free market manifesto….well if facts are hidden then how is a consumer suppose to be able to shop and take responsibility for his/her decisions?

    Russ says he can make lots of money and still offer lower rates than the banks. Then go for it!

  54. Whoa!

    New comers to Real Estate never knew the market place to begin with. The internet did change things dramatically. Loan Originators, like Real Estate agents are coming to grips with the “new” way of doing business.

    I used to be able to buy a property in the morning, and sell it the same day for a profit. I could buy, sight unseen, properties aand/or assigned for a group of prospective buyers who also never cared what I made.

    Do you remember those days? Those are now referred to as the bad old days of Real Estate, but every one of my clients is long retired, and I’m here blogging with you.

    I understand completely your frustration. Every time I think I have something good for the consumer some bureaucrat, or agency, like a an unnamed trade agency for Real Estate agents, decides they know what’s best for the consumer.

    Well, the internet is the way of the future, and you can forget about the past. Look forward, because no one is going to let Loan Originators make undisclosed income.

    • what’s interesting is that LO income, if the LO works for a bank, will never be fully disclosed. Yes, this LO made $1000 on your loan from the bank and you, dear borrower, have a rate 0.25% higher than market from trusting your big bank and believing that just because your LO is disclosing they were only paid $1000, you got a better deal…what you’re missing, dear borrower, is that the bank is RAKING it in and that the LO will get UNDISCLOSED bonuses based on volume or some other incentive plan that is sure to encourage pushing as many loans (filling out loan aps) through as possible instead of truly helping the borrower/consumer. Just the commission tied directly to that transaction will be disclosed.

      I’m not seeing or hearing anywhere if bank LO bonus compensation will be disclosed because the banks want to separate it…part of the smoke and mirrors and trying to comply with the new regulations.

  55. This is the same as Real Estate brokerages have done. The consumer is having paperwork written, and a game.

    Isn’t that what this is all about?

    We have a few Big Brokerages who divide up the pie, drive up prices, regulate “agency” until all that’s left is the measely little 6% commission to squable over. They decide, they divide, they keep the lion’s share of the profits while agents run around drumming up business, any way they can.

    Welcome to the club. You are now a part of the bad old days of Loan Origination.

  56. I wont even go into why you are so totally wrong on this subject since many others have brought up valid points that you choose to disregard.
    Bottom line is there is nothing good that will happen from the new restrictions. It will end up costing the consumer more, making the companies more and costing many LO’s their jobs. I have owned a mortgage brokering company for 18 years and then went to work for a Bank the last 2 years. I have seen the sub prime thieves come and go…..that’s right GO…They are no longer around….those were the people making 10 points on deals. The LO of today is capped at @3% of the loan amount and @50% of that stays with the company they work for. This 3% cap has been in place for a LONG time
    Now if the Feds said that the COMPANY can only make x amount then I would not be as upset….but that is not the case.
    The problem with the law is that it was made by people that have no clue and supported by people like you that THINK they have a clue but simply do not. Did deep…look into all the facts then tell me if you still think this will be good for the consumer

    By the way my income last year was @ 60K and I worked probably 50 hours a week including evenings,Saturdays and Sundays. For 23 years of experience that’s not very much money….I do loans for people that serve food that make more per hour with tips. We need to go after them next..I mean who EARNS 30 bucks an hour serving food to people. Did they catch the chicken? Cook the egg? THEY DID NOT EARN THEIR MONEY!! (TAKE THIS PART AS A JOKE)

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