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The new regulation disallows this because a lender's compensation to an originator must be consistent. This makes for a lot of unhappy retail mortgage bankers. Compensation solutions for retail originators such as hourly wages based upon pull-through and closing volume don't sound exciting. The mortgage banks that attempt to maintain the faux-YSP scenario will find themselves receiving large fines and sanctions when an audit discovers the variable commissions.
If you're a broker, you might wonder why you should care about what happens to retail-originator compensation. Maybe you shouldn't. On the other hand, you might find it important to know that the Fed rule eliminates the last major benefit associated with working for a retail mortgage bank or federally regulated depository institution.
After April 1, retail lenders that want to remain competitive must compensate their originators the same way wholesale lenders compensate brokers. This means the end of compensation and disclosure advantages for retail versus wholesale mortgage originators.
Come April 1, many originators will have compelling reasons to leave the mortgage bank that has sheltered them from regulation and take steps toward larger compensation and more freedom in the wholesale market. This likely will increase the broker population and drive additional demand for wholesale mortgage products.
As a result, we're likely to see a more competitive landscape and more-aggressive rates followed by a surge of new wholesale lenders.
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Despite the doom and gloom so many industry-watchers have predicted in response to the Fed's new compensation rule, brokers should consider the rule a victory. By knowing how to calculate your compensation and understanding the elimination of competitive advantages once given to retail lenders, brokers can cut through the cloud of misinformation.
Andrew Weiss-Malik, chief operating officer at 360 Mortgage Group LLC, is recognized as an industry leader in mortgage-technology innovation. He utilizes his experience in capital markets, mortgage-product development and efficient operations to expand the capabilities of mortgage bankers. At 360 Mortgage Group, Weiss-Malik has helped create an impressive force in wholesale lending. His past experience includes executive-level management at Castle & Cooke Mortgage and Home Mortgage Inc.
Reach him at (866) 418-2997 or email@example.com.
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