Countdown to Fed’s LO Compensation Rule Begins, Interpretation a Work in Progress

As the April 1 implementation date for the Federal Reserve’s loan officer compensation rule grows closer, three reverse mortgage executives sat on a panel at the National Reverse Mortgage Members Association’s industry conference last week to discuss their status as the clock ticks. They are prepared, they say, the but their interpretation of the rule continues to be a work in progress.

The panel included Bill Trask, executive vice president and general counsel for Security One Lending; Peter Sciandra, director at MetLife Bank; Pete Engelken, CEO of Genworth Financial; and Jim Milano, general counsel for NRMLA. The discussion was moderated by Peter Bell, NRMLA president.

The topic has been discussed for months and has caused widespread uncertainty for mortgage professionals, many of whom have yet to know how exactly they’ll be compensated come April 1.

“The more they try to answer, the murkier it becomes,” said Bell of the dialogue between mortgage companies and the Fed. Bell has led the association to push for guidance from the Fed with regard to the rule, and last week wrote a letter on the association’s behalf asking Fed Chairman Ben Bernanke to delay implementation of the rule.

While the panel was mostly mum on how exactly their companies have interpreted the rule and what their new compensation structures will look like, participants said they have devoted resources to preparing for April 1. Without providing details, they say the process has been challenging, but ultimately will lead to a positive outcome.

The challenge of developing a plan to comply with the rule, as outlined by Trask, was threefold: “We saw three things. One, we knew we had to figure out the purpose of the rule and implement that purpose. Two, find a way to provide continuity of revenue to originators, and three, find a way to communicate effectively what these changes are and how they work.” For a Top-10 lending company like S1L, that challenge extends through all business channels. “We have a variety of business channels and we’ve had to approcah each one differently. Everyone is compensated in a similar way to how they were compensated previously,” Trask said.

While there are still questions that remain unanswered, said Engelken, it’s important to move forward with the best information available. “If answers aren’t out there in writing, we’re looking at the underlying intent and trying to make practical decisions based on what’s in the consumer’s best interest, and apply the rule that we think is consistent with the intent of those who wrote the rule,” he said.

On the implementation front, Sciandra pointed to the technology aspect of the process. “Once you figure it out, you have to modify the system.  We have our tech team running around like they have their heads cut off,” he said.

The panel agreed there are questions left unanswered, but with regard to the uncertainty, the panelists stressed that it’s important to move forward.  “It’s a work in progress,” said Trask. “Even the day of the rule we’re not going to have all the questions answered.”

While no company has said exactly how they have addressed the rule with regard to a new compensation structure, industry leaders say the rule is ultimately a good thing.

“It’s a change we think is good for the industry. We will make sure it’s going to promote ethical behavior within our industry,” said Sciandra.

Milano stressed the importance of being prepared on time. “Get your applications in now. Don’t wait. We don’t like living on the edge,” he said.

“We can’t expect, plan or hope for delay. We’re going forward as though this is happening April 1. It has to be that way at this point,” said Sciandra.

Written by Elizabeth Ecker

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