Written By: Bonnie Wilt-Hild
I’m sure by this point everyone in the mortgage industry is aware of the impact that the Dood-Frank Wall Street Reform legislation will have on the mortgage industry. The impact was far reaching to be sure, affecting everything from Truth In Lending to appraisal practices and standards, but none of these changes have quite the impact that the revisions to loan officer compensation will have on loan originators. Under the legislation, Loan Originators will now be capped at earning no more than a 1% origination fee and of course yield spread will be a thing of the past.
Now while I agree that controls need to be implemented to spare borrowers the preverbal rape that sometimes occurs when less than scrupulous originators get busy on equity, I also think that capping the compensation an originator can make to a flat fee, is somewhat unfair, a little un-American and generally not in the best interest of the consumer.
So let’s talk unfair. First I would like to say that I would be the first to say that some originators shouldn’t be compensated one dime for what equates to in my opinion, to filling in some blanks because other than that, they do absolutely nothing where the origination piece is concerned short of picking up a check once the loan closes. There are however a lot of really great loan originators out there who are well seasoned and extremely experienced who work closely with the borrowers and their realtors throughout the entire process to make sure that the borrower gets to settlement as per the Contract of Sale.
Additionally, some cases are very difficult and require significant time and effort on the loan officer’s part and in these instances I feel like they should be compensated for not only their time but also their experience. Think about it for a minute, in no other industry in this fair country of ours is an individual’s salary capped regardless of their work ethic, skill or knowledge. It’s just not how things operate in America, which brings me to the American way of doing things.
When we were children our parents told us we could anything we wanted, include be president of the United States. All we had to do was work hard, be honest and get a good education and the sky was the limit. We have seen throughout history, people come to this country penniless and by the sweat of their brow, become millionaires. A great example, Andrew Carnegie, migrated from Scotland with his parents as a child, his first job was in a bobbin factory and through hard work and diligence ended up the owner of Carnegie Steel among other companies.
Think about it, would you find a neurosurgeon who was the best in his field, charging the same fee as a pediatrician, of course not because the neurosurgeon has a specialized skill, a certain expertise which he is compensated for. So why not the loan originator? If his skill is such that he can get even the most difficult of deals worked out and is willing to provide this service to his borrower, why shouldn’t he or she be compensated, even at a higher level than an originator with 4 months experience who has no idea how to calculate a loan to value. Trust me, the originator with 20 years of experience will be best able to serve this borrower even if the borrower pays a little more for his services, remember you get what you pay for which brings me to my final point and that is service.
As we all know, origination fees are based on loan amount. The lower the loan amount, the lower the fee. By limiting the originators fee to 1% the borrowers who are purchasing low to moderately priced housing are more likely to receive poorer service then borrowers purchasing in the upper end market. The reason is obvious, 1% of nothing is nothing so the more experienced loan officer will pursue originations in the higher costs markets living the lower costs markets to the less experienced loan officers who more than likely will not have the knowledge or skill to assist with the issues that tend plague low to moderate income borrowers such as general credit issues, insufficient cash to close and slightly higher ratio’s. End result, an entire class of already underserved borrowers without the expertise that is sometimes required to help them attain homeownership.
I am sure you are thinking at this point it will all fall on the underwriter to get the messed worked out at some point and your right it will. It’s not enough that you have to be a financial psychologist, now you have to be a social worker. Just be glad you’re not an originator, or you would be making less to do it.
About The Author
Bonnie Wilt-Hild - As an NAMP® staff writer, Bonnie currently serves as a senior instructor for FHA Online University (www.FHA-Classes.org) as well maintains a full-time mortgage underwriting position as the Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans". If you're interested in becoming a writer for NAMP®, please email us at: firstname.lastname@example.org.