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   ARTICLE   |   From Scotsman Guide Residential Edition   |   May 2016

Prepare for the Next Wave of Compliance

When regulators look into originator compensation, make sure your worth is evident

Prepare for the Next Wave of Compliance

At a glance

Regulators are looking at originator compensation

The Consumer Financial Protection Bureau's Regulation Z prohibits an originator's compensation from being based on any terms or conditions of the loan, including its interest rate or whether the originator led a consumer to purchase a product from a party affiliated with the originator. It also prohibits compensation based on any "proxy" for terms of the loan, and prohibits compensation from being reduced to offset transaction-cost changes or generally from being linked to transaction profitability. The rule also prevents originators from being paid twice for the same loan (such as from a consumer and a creditor).

Source: Consumer Financial Protection Bureau  


For many mortgage professionals, much of last year was spent preparing for the Truth in Lending Act and Real Estate Settlement Procedures Act Integrated Disclosure rules, better known as TRID. Now that the rules have gone into effect, some originators may be tempted to relax a bit. That, however, is probably not wise.

Although TRID has been implemented, regulators will still be keeping an eye on several mortgage industry issues this year, including originator compensation. By knowing this issue inside and out, originators can be fully prepared when this next compliance wave hits.

Last December, Calvin Hagins, the Consumer Financial Protection Bureau’s (CFPB’s) deputy assistant director for originations, said that the bureau would be zeroing in on four contentious areas in 2016: the ability-to-repay rule, ongoing TRID compliance, marketing-services agreements and loan-originator compensation. To some degree, all of these will be important for front-line loan originators to know about, but perhaps nearest and dearest will be compensation.

Ever since the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in 2010, the industry has watched tens of thousands of professional mortgage loan originators move off to greener pastures. Many sales professionals who worked in the industry prior to 2007 will tell you that the days of $400,000-plus annual incomes are over. Although that may not always be true — some top originators still make excellent incomes — the government is concerned with how those in the mortgage industry are paid, perhaps more so than in any other industry.

Executive teams all across the industry are hard at work building compensation strategies that will attract top talent without attracting the wrath of federal regulators. That work is largely out of the hands of originators, but that doesn’t mean you are powerless to prepare for the changes that are likely to come this year.

In fact, there are three things that originators can do now to put them in a good position to deal with these potential changes. They involve mastering the details and ensuring that all of the “little things” are in order.

Get serious about contacts

Whether it’s locked up in your e-mail, a spreadsheet or other software, you need to take ownership of your client list now. Technically, those customers probably belong to the company you work for, but the relationships belong to you. If you are not already treating these customers like gold, you are setting yourself up for trouble.

Certain real estate data companies, for example, would find it tough to deliver necessary information to their clients if the facts for their reports weren’t tucked safely away in the public record. You need to figure out where your public record is. With Web-based software so affordable these days, it makes sense to explore a cloud-based content-management system.

This is not to suggest that you steal valuable customer information from your current employer in case new compensation rules force you to switch jobs. If, however, you are not nurturing your relationships, you will put yourself at a disadvantage.

Boost your online reputation

Many consumers now start their searches for a new home, and financing for that home, online. Even those who start their search by visiting or speaking with industry professionals are bound to head to the Internet to perform due diligence on the lender or originator recommended by their Realtor. If they go online to look up information on you, what are they going to find out?

A great reputation is important in all aspects of life, but what people say about you online tends to linger and is significantly easier for people to find. Do you have a good website that showcases who you are and what you can do? Is your LinkedIn profile up to date, and have consumers recommended you there? What about online review websites?

A 2015 study from BrightLocal found that 92 percent of consumers read online reviews, and under many circumstances, 80 percent trust online reviews as much as personal recommendations. You need to find out where consumers are going and make sure that you solicit positive reviews.

Another way to build your reputation online is to write a blog. Share what you know about the issues that are important to people looking for home financing, and you will cultivate a following online. Blogging is critically important, given many of your competitors are likely well aware of the power of content marketing — and their blogs may be grabbing attention that could be coming to you.

Chances are good that your clients want a few simple things from you for their home loan. They want approval. They want advice. But, most important, they want the loan to close quickly once a sales agreement has been approved. Quality and due diligence are more important than ever, but speed remains a huge variable by which borrowers tend to measure their lender. If you are partnered with service providers who lag behind on title or appraisal orders, it’s probably time to do your homework and find someone more efficient. 

Secure your internal reputation

Never forget about your reputation inside your company. If you want to be viewed as a valuable commodity if and when your part of the business becomes commoditized, you need to bulk up your originations now. If there was ever a time to put in a few extra hours, it would be now.

One place to score some easy wins may be home-equity lending. Across the country, equity is up and interest rates are still low enough to keep people in their existing loans. Property reports can tell you what liens are outstanding on a property, letting you know when there is likely equity for a second lien.

The CFPB has been clear that it will hold lenders liable for the actions of their third-party service providers — such as the title agents, abstractors, appraisers and other partners you work with every day to close a deal. Now is a good time to be sure that you are using partners you have vetted carefully.  Better yet, channel more of your functions through a single vendor, or a reduced number of vendors you trust. Those trusted vendors, in turn, can manage and oversee fourth-party functions.

Regardless of what new business you go after, this is the year to go after it. If lenders have to decide what value to put on their originators, independent of future originations — with rules prohibiting compensation from being tied to transaction profitability — your future pay will depend on your past performance. So, get performing.

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Ultimately, you will not likely be in a position to do much about how the originator-compensation issue shakes out or what it will mean to other originators at your company. What you can do is make sure that you have taken the steps to assure that everyone, inside and outside of your company, knows how valuable you are.


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