Lenders Tackle Internal Rewrite on Loan Originator Compensation
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Mortgage firms struggle to examine new rules from the Federal reserve concerning caps on loan originator pay.
"It's going to make a lot of people restructure their home loan business units," according to Elizabeth Deal, executive vice president of a home loan subsidiary operated by the Independent Community Bankers of America.
Lenders will likely need to rewrite the task descriptions of their LOs and pay out packages, "which could really impact their way of life," she said.
The Federal reserve payment regulation allows loan merchants to pay a loan officer or mortgage broker a flat fee or a percentage of the amount borrowed.
Independent Community Bankers of America Mortgage provides community banks with use of the secondary market. Many community banks pay their LO's a base income with numerous LOs getting a bonus at yearend subject to their mortgage production volume."
Almost certainly, this rule change doesn't affect a majority of our members," she said, "but it does affect some."
David Christensen, CEO of Christensen Financial, Inc, a mortgage net branch cooperative with more than 200 member firms, said there exists much confusion concerning the Federal reserve's compensation regulation concerning his affiliates."
They are uneasy about possible limits on loan officer compensation," he said.
The Lenders One CEO emphasized that he advocates for 1 key target of the Fed law, which is to exclude compensation practices that encourage LOs to steer consumers into riskier and higher-priced loans, and this includes nonprime mortgage loans that contain teaser rates and prepayment penalty charges."
However, the rule should encourage loan officers to finally earn a living depending on the amount of loans they produce and the amount borrowed, with no cap on income," he said. Stern believes this would allow the loan industry "to continue to recruit the best and the best from the financial services world."
ABA senior regulatory lawyer Rod Alba said he is not attentive of any max on LO compensation in the law.
The Fed is "not setting the rate that is ultimately charged to the consumer," the American Bankers Association vice president said. And the Federal reserve is "not capping how much you can pay the broker or the loan officer," he added.
However, the Federal reserve is not the only government entity requiring the mortgage world to change its loan officer payment policies.
Yet again in Mar, the Department of Labor issued an interruptive rule suggesting that loan officers who work primarily inside the office are entitled to overtime income.
The ABA regulatory counsel said it is not clear how the Federal reserve's payment guideline is going to interact with the Department of Labor's position on overtime compensation.
"With the Federal reserve tightening up on payment to loan originators, and the businesses facing so much risk from the overtime rule," he said, the "pure commission-based compensation system is in all probability a thing of the past."
The ABA vice president suggested that organizations may end up paying loan originators a set salary to work nine to 5 and a reward at the end of the year if they produced one hundred mortgages.
The Independent Community Bankers of America mortgage executive announced that LOs in most cases have larger number of assignments at a community bank. They are salaried employees who will work overtime to help individuals. But that kind of flexibility might have to change under the overtime law.
In the meantime, LOs that originate commercial real estate loans are not affected by these pay changes.
Article Source: Articlelogy.com
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