Loan Originator Compensation, Retention Push Systems Accountability
Sorohan, Mike email@example.com
From the consumer's view, a mortgage transaction involves one, maybe two, people: a loan officer and a closing representative.
In reality, said Joe Ludlow, vice president of sales with Advantage Systems, Irvine, Calif., the mortgage loan originator might be just one of many staff involved in the loan, as well as part of the compensation chain.
"There are a lot of people being paid on every loan," Ludlow said. "Loan originators; managers; processors; regional managers-you might have seven or eight people being paid on one loan. The loan originator has just one piece of the pie."
Additionally, Ludlow noted, under new Dodd-Frank Act rules, loan originators are paid along different scales, depending on production, and have steeper compliance requirements. These new rules, along with new requirements under the Consumer Financial Protection Bureau's TILA/RESPA Integrated Disclosures rule and pending updates to the Home Mortgage Disclosure Act, make mortgage accounting more challenging than ever, he said.
Ludlow said loan originator compensation is important to lenders in an increasingly competitive environment.
"Never underestimate the creativity of the American loan originator," Ludlow said. "The top loan originators can find a way to squeeze out a few basis points out of every deal, and these are the people the lenders want."
To attract and retain these loan originators, Ludlow said, lenders need to be more competitive. "More recently, some firms are making their loan originators partners in the firms and involving them in the structure of the company, making them eligible for different kinds of bonuses and other compensation," he said. "
Additionally, Ludlow said lenders need to help loan originators navigate new compliance schema. "A sophisticated loan originator is not only looking for the highest commission rate, but also the ability to get compliance reports done in a timely fashion," he said. "Everyone believes that there is a bigger loan purchase market to come, so there is an emphasis on top-performing loan officers. You have to know how make a loan. Those are in high demand. Being able to provide flexible compensation without overburdening staff and providing accurate and timely reporting enables lenders to keep their loan originators happy and grow business."
Advantage Systems' flagship product, Accounting for Mortgage Bankers, includes a commission calculation model allowing lenders to create a compensation structure for each type of loan for each iteration offered to loan originators. "We have more than 100 customers that use our model," Ludlow said. "Most firms have several plans for each type of loan and most companies do several types of loans."
Ludlow said AMB provides a structure that most lenders need and loan originators desire. "We're changing the dynamic," he said. "Many of my clients come to me and ask, 'how do they approve the commission?' In our opinion, accounting departments drive this. We don't allow branch manager and loan officers to modify a commission on a loan-by-loan basis because that runs the risk of regulatory scrutiny. Our system lends itself to more of a structured approach, with seamless integration. This is important not only for payment, but for recruitment and retention with easy to understand reporting.
Looking ahead, Ludlow said several issues loom on the horizon, including consolidation, which he calls a key buzzword for 2016. "We see a lot of smaller firms getting together to become larger firms," he said. "It's difficult for smaller firms to gain a foothold in today's regulatory and compliance environment. The compliance overhead is just brutal."
Ludlow said companies such as Advantage Systems are trying to make these issues easier for lenders. "We pride ourselves on being the industry standard for mortgage accounting software," he said. "We have a tremendously good multi-company strategy in place. We are working on some of the larger consolidations out there as their accounting vendor. We're looking at 10-year-old companies that are coming together with their own set of books. We're ready for that. You want to have companies like ours."