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HousingWire Magazine: December 2021/ January 2022

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Politics & MoneyMortgage

How a noncompete ban would impact the mortgage industry

Sources said that mortgage workers that do sign noncompetes are limited in where they work for numerous years

HW+ lawsuit

On July 9, President Joe Biden ordered the Federal Trade Commission to fully ban or limit an employer’s use of noncompetes. If such a rule is implemented, industry veterans and labor attorneys say it could change how the mortgage industry recruits and retains talent over the next decade and beyond.

Should the Biden administration make good on its threat, some loan officers, account executives and marketing personnel bound by such agreements would be able to switch jobs without fear of potential litigation from their employer.

The general gist is that the impact of a rule banning noncompetes would be marginal, mainly felt by non-originators, who are more likely to be bound by a noncompete agreement, attorneys and lending executives said.

Noncompetes rarely target loan originators, though there are instances in which an LO signs a noncompete with compensation tied to it, said Kevin Peranio, chief lending officer at PRMG.

“Any company that pays big money upfront to induce an originator to come over it is going to make it up with less competitive pricing down the road,” Peranio said. “Typically, lenders do employ this tactic to pay up for higher performers.”

Audrey Boissonou, a loan officer with Guarantee Mortgage in California, said that before LOs sign a contract, they are usually careful to make sure that there are no limitations placed on their future careers.

“It’s not just what the company offers you but what is the experience when you’re leaving … if they’re going to not pay you out your loans or you’re not supposed to take your data base, that’s not ok,” she said.

Scott Crutcher, president of mortgage-focused executive recruitment firm Maverick Financial Group, noted that the noncompetes that he has come across typically target executive level managers. They generally prevent these employees from working in a similar role for a specified period of time. Crutcher said that some of the noncompetes that he’s seen limit an employees ability to work in the same sphere for up to two years.

What seems to be more prevalent in the mortgage industry are non-solicitation clauses, according to Jim Clapp, president at Certainty Home Loans.

Clapp remarked that these clauses “state that an LO or employee cannot solicit employees from the departing company for a set period like six months or one year.”

Crutcher also added that in his line of business, which is recruiting, it is more common to see non-solicitation agreements that specifically target “branch manager level employees and above.”

“The intent is if a branch manager moves, they can’t take their team of LOs with them. That’s what employers are guarding against,” he said. “Would it be helpful if that would change in the industry- absolutely, more teams would be open to looking for different or better opportunities.”

Sources interviewed by HousingWire disclosed that workers that do sign noncompetes are limited in where they work for numerous years, with some insiders noting that certain lenders do not allow former employees to operate within 50 miles of the branch that they were working at.

Joe Tymoszczuk, national account manager at BCHH Title, who has previously worked with mortgage lenders, said that he has heard of only a “few instances where [noncompetes] were enforced” and that from his experience, noncompetes are more common with small lenders that worry about other lenders recruiting their LOs. (He also noted that noncompetes are common in the title industry.)

Tymoszckuk added that usually LOs feel that they can jump from one lender to another, though some lenders are wary of former LOs leaving to start their own mortgage shops, “so the lender will make their employees sign a noncompete to discourage anyone else from leaving.”

To date, noncompetes have been dealt with on a state-by-state basis, with some states like California, Oklahoma and North Dakota, banning them, while numerous others prohibit their use with low wage workers.

However, Jonathan Pollard, a litigator at Pollard PLLC, who specializes in noncompetes, said that in certain parts of the country, particularly in the South, noncompete abuse is rampant. Pollard pointed to Texas and Florida as the epicenters of noncompete abuse.

“Originally noncompetes were meant to be exceptions and not the rule… they were meant for higher level employees such as executives and CEO’s, people who had the keys to the kingdom,” Pollard said. “Now you look around and noncompete agreements are at every level of every industry.”

One such industry? Real estate. The attorney said that it is not unusual for a noncompete to be slapped on “mortgage brokers, bankers, loan officers, real estate agents, title companies, insurance companies.”

Pollard expects for an FTC rule to be introduced in the next several months but fully anticipates push back from “corporate America.”

Meanwhile, the White House estimates that somewhere between 36 million and 60 million private-sector workers are subject to noncompete agreements and that the use of these contracts not only prevents mobility of workers, but also mitigates a worker’s ability to lockdown a higher paying job.

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