FEDS TO THE RESCUE WITH LOAN OFFICER COMPENSTAION RULE - or not!
L O Compensation Rule - 
- Requires the originator of the mortgage loan set an amount they want to earn and not vary that from loan to loan, regardless of the type of loan or amount of time or work that loan takes to get done. Income for originators particularly at banks is slashed.
- RESULT - LOST ORIGINATOR INCOME AND POSSIBLY CAREER ENDING.
When there is less income, will someone even want to originate loans for a living? How does this help in the day of high unemployment and hard economic times?
- A loan originator cannot give any of his/her compensation to the borrower. Prior to this rule if a borrower was short funds to close, particularly if the originator make a mistake, they could make it right by offsetting the cost from their commission. They no longer can do this.
- RESULT - LAST MINUTE CLOSING PROBLEMS AND FAILED CLOSINGS.
- In the past an originator may be willing to earn 1% commission on a $200,000 loan, but would want to earn 3% on a $50,000 loan. Like a lot of sales people they want to make a certain amount per loan to make it worthwhile to do that loan. (worth mentioning lenders do and can charge points for smaller loans, interesting concept given the L O Comp Rule)
With the loan officer comp rule, an originator cannot change the percentage they charge borrowers. Due to the preset compensation percentage they may make more money on the bigger loans than they want and less on the smaller loan. Previously, originators would most likely be willing to cut what they were making on some loans to get the deal; that is no longer possible. RESULT - REDUCTION IN OR ELIMINATION OF COMPETITION
The problem with this premise is that the bigger loans and perhaps more qualified borrower will pay a higher rate than they normally would. Without the ability to reduce the amount earned loan to loan, smaller companies simply may not be able to compete causing them to leave the industry to the big players. RESULT - PRICE INCREASE TO LARGER LOANS.
- Another problem is a loan originator cannot benefit from ANY additional income on a loan, however, his/her boss CAN. For instance if the loan originator agrees to work for $500 compensation on a $100,000 loan, but the pricing on that given day pays $750 on that loan, the person who actually did the work can't be compensated additionally, but the company or the boss. RESULT - MORE INCOME FOR BUSINESS OR CEO'S
States mandate the maximum that can be earned on a mortgage loan. Call me crazy, but I would presume some thought went into that number. Lenders often have a number in place as well. If the maximum that can be earned is 3.5% on any loan for instance, then why do we need the L O Comp rule?
This is equivalent to walking into a showroom to buy a car and knowing the salesperson will make .5% on every car, no matter the size, price,model, etc. One could look at the sticker and know what the end price would be. If I consider this any amount of time, it may be appealing to me, but to say the overhead and costs are identical from one dealer to another would be inaccurate.
Or how about going to every grocery store and finding exactly the same products on the shelves at exactly the same price. Imagine every product this way. Sure would simplify our lives, but what does it do to a "free" economy?
I'm sorry for the people who got hurt on the bad loans. I am not responsible for any of them. When the government starts setting prices, then we are in some scary territory. And, yes, it is price fixing. After a few months of massaging everyone will settle down to charge about the same. Banks will pay the originator way less than he/she earned in the past, but they will keep their rates competitive with the brokers; the money will rise to the top.
BOTTOM LINE OF THE LOAN OFFICER COMPENSATION RULE IS THAT BORROWERS WILL PAY MORE IN INTEREST RATE AND CLOSING COSTS AND BANKS WILL REAP MORE PROFIT AND WE LOSE A LITTLE PIECE OF OUR FREE SOCIETY.
