Last year, nearly 250 senior executives at some of the nation’s largest mortgage companies asked the Consumer Financial Protection Bureau to change the Loan Originator Compensation rule, which governs how much loan originators are paid.
The group, which was organized by the Mortgage Bankers Association, included senior leaders at Franklin American Mortgage, loanDepot, Guild Mortgage, New American Funding, and many others.
The lenders asked the CFPB to allow LOs to voluntarily reduce their compensation to allow them to compete in the market. Now, that group has a rather vocal opponent stating that those proposed changes are a “completely unacceptable” idea.
The National Association of Mortgage Brokers recently sent a letter to the CFPB, calling on the agency to make changes to the LO comp rules, but it wants much different changes than that group of lenders called for in October. And the broker group takes issue with the lenders’ proposals.
“NAMB finds the suggestion to reduce the income of employees who must earn a fixed commission rate set by the government completely unacceptable, particularly when the suggestion is coming from a group of employers that do not have fixed compensation and are free to raise fees and rates at their discretion,” NAMB President Richard Bettencourt said in a letter to CFPB Director Kathy Kraninger.
“Employee loan originators do not mind competing on price, but the employee is the one with a fixed commission on each loan while the lender-employers do not have a similar compensation cap,” Bettencourt continued.
“Lenders can make as much as the market and competition will bear,” Bettencourt added. “If the CFPB decides to grant the requests made in the October 17, 2018 letter, then the loan originator compensation fee caps must be changed in order for loan originators to be fairly positioned to reallocate their commission funds in order to cover business costs.”
According to Bettencourt, when the government institutes “price controls” in the mortgage market, “inefficient” companies typically target employee compensation as a means to keep more of the money for themselves.
“Reducing lender operational costs and creating greater efficiencies are what they should be doing on their side of the equation, as opposed to reducing employees’ ‘set- in-stone by the Federal government’ compensation,” Bettencourt writes.
“It is the lender-employers that should be dropping their fees (or reducing rates to help them compete), not the other way around,” he adds. “Banks and lenders should be investing in and deploying new technology to become more efficient and compete in the marketplace rather than take from their employee loan originators’ commission.”
According to Bettencourt, a “better” approach would be for the CFPB to remove the “price controls” from the LO comp rules and “explore new ways to prevent steering” in the industry.
“Technology has changed since the passage of Dodd-Frank and there are third-party validation methods - pricing engines - to better detect and restrict loan originator steering,” Bettencourt writes. “The industry should explore these options before we attack employee income.”
To read Bettencourt’s letter in full, click here.