[David] Let’s get into the favorite topic. Alice, good to have you here with us always talking about legislation. What you got for us today?
[Alice] Since Congress is going to be on recess for the week we definitely have to watch the markets, as Matt said, but I thought this would be a good time to talk about LO Comp. And also in light of that, we have, I send it out to everybody here. I can give a link to our listeners. The Community Home Lenders of America published a white paper just this June on the reform of LO comp. So it brought the topic back to the surface. They make a case here. Their conclusion essentially is that the LO Comp restrictions on compensation to a lender’s employee LOs Harms consumers, is based on a flawed theory, ignores increased price shopping, sets a harmful precedence, and creates an unlevel playing field. So, if you’re interested in it, it is available. To anyone who wants to use your favorite search engine to go find it. But I know for this group we all have different thoughts on essentially it’s the current truth and lending regulation. Back when Dodd-Frank was put in place after the meltdown in 2007 and it really clamped down how lenders in particular can pay their loan officer. And one of the biggest challenges that they raise here that we can talk about is always that, you’re not trying to get a higher compensation, but your borrower’s naturally going to shop. And so if they come in and say, Hey, you know what, I’m gonna go across the street because they’re offering an eighth less, can an LO give up some of their compensation in order to try and keep that customer. That’s something that’s always up for discussion, lenders try and manage it in small doses. But love to get this group’s thoughts on where you think LO Comp should go. And for our listeners, a couple of us on this call come from the days of you’ve got one point origination and it was split between the company and you. When I was in LO that’s all I got was the 50 basis points. That was it. Fair enough. Oh wow. Dave, I don’t know about you, but what you guys paid, where should LO comp go from here? It’s the biggest cost in origination.
[David] You raised probably in the CHLA comp. Kudos to them. And my good buddy over there Taylor Stork, who is the president of CHLA for writing this and putting this out, it needs to be raised. There’s it’s been inequities in this all along. But let’s, Mr. Kittle, you’re good on policy as a former chairman of the MBA, let’s start with you on this discussion that will come.
[Kittle] To Alice’s point, she’s exactly right. When I started I was at 50 basis points, and average loan was 35,000, do the math and interest rates were 17.5, 18%. And I get the argument all the time you houses only cost $35,000 back then while people were making an hell of a lot less. Alright? So it’s a percentage of what it is. I think, and I have said it on this podcast for a couple of years, that I think LO Comp is too high. And if you’re out there switching companies because your company is struggling and they’re not able to provide, it’s probably because you’re the biggest cost in the company right now. And when companies need to manage, they need to be able to have the flexibility to do a loan to the point that was made earlier. Can I reduce my commission to get a deal done? Did that my whole life. And that should be available to people out there. It just should. But to make two and a half, three points on a loan way we have over the years or whatever they’re making today, some of them maybe not in this market way too much.
[David] I think the bigger issue goes with this is I was talking to a client one of the regional managers of a client on Friday, and he says, Dave, he says, you can, we pay a sign-on bonus to have them come on. You get a good, decent originator, they can pick up anywhere from 5,000, 10,000 15,000 up to 250,000. Some of the originators are getting pick up nearly a million dollars to transfer over to, change to another company. They follow the money and they will stay until that la the one month they’re outside of the recapture, they’re up and getting again. He says, we only lease these loan officers. He says this is, we revolved it or devolved into one of the worst systems out there. As far as the way we handle this.
[Kittle] Somebody’s gonna have to stand up and take and said this before and take the step and be the big boy, and it’s gonna take some hits to do it and just say, I’m not paying this anymore. It’s about profitability. And you can’t continue to pay these rates. And we did it to ourselves. We always do.
[David] Yeah. And I think it’s has Mark, I think it has to do with those that have the servicing p portfolio that can afford from the servicing income that they have versus the originator that sold their servicing to be able to stay afloat and they don’t have the servicing income to help offset this. That, in your mind, how much of a factor is that?
[Marc] I think in my career I’ve seen the good, the bad and the ugly. And I think right now it’s the ugly your point about servicing portfolios taken. David, You get when you’re a big servicer, you gotta feed that machine. You get your staff built up, you get people trained, you’re rolling and you don’t need to have runoff. So you need to get as many loans as you can to keep from having the runoff and keep your staff in play and you get used to that income because it supports your company during the ugly times. How many times does originations fall by the side and the company’s always got their servicing income depend on. That’s been a frequent cycle in our industry and all. But I have a problem if somebody does a hundred thousand dollars loan and makes a 1% commission, just say that’s a thousand dollars and they make a million dollar loan and make a $10,000 commission. Help me figure out. What in the logistical sense of somebody being compensated, how did they earn tenfold on that million dollar loan? Did they really and so I believe for a long time, we loan officers on the phone would probably shoot me for saying this, but I think we need to have a schedule that makes sense on that and if you did that, you’d have inside companies, you would have less of play in this game of trying to, and it’s the same way, it’s been the same way in the real estate commission, the same way the bigger house, the more commission they make. But if we had some way to control that, then we wouldn’t be playing with interest rate margins and trying to figure out how they gotta negotiate this and negotiate that. When’s the last time you saw a loan officer give up a piece of their commission to make a deal work? I’ve seen that in my career, but how many times have you seen that in your career?
[David] They’ve been precluded from it under ml, by the way. But I think they’d be numerous times they’d be willing to do that because I like, as pointed out, the loan officer they’re at risk of losing the whole damn transaction and because they’re moving somewhere. It’s, there’s some ities that this is getting addressed. Hopefully. This will get addressed. What is here’s the bigger thought. What is the probability we’re all talking about this the problem? What is the probability of it changing and what is it gonna take?
[Kittle] How do you start it again? I think I said it a few minutes ago. Somebody’s gonna have to stand up and take the position, one of the larger companies that this is what we’re paying. And you’re gonna have to find loan officers that are thinking more long term about the company than more about themselves. And that’s a broad brush. And many of them do love their companies and stay forever. So, I’m not just pointing a finger at everybody out there, but when you have the ones that jump to the end of whatever their sign on bonus is, that’s the kind of people that, I wouldn’t hire to begin with. I never paid a sign on bonus.
[David] Yeah. No. Yeah. But in this market, and if you want to grow with some people that’s a requirement though. Bill, when you look at this topic, and it’s something I’m more concerned that we’re gonna have something completely out of left field come at us, because I agree with what David’s saying. Somebody has to stop, but as long as there’s someone willing to pay, like I’m talking about Rate, Guaranteed rate. As long as Victor’s willing to do what he’s doing, spending that, because he has a large servicing portfolio and he can, this problem is gonna continue, but I think it’s possible that we can have somebody come in totally from the outside and change a new paradigm. Bill your thoughts?
[Bill] I think, and I hope the change comes from within the industry, right? Because there’s another piece of this where there’s talk about the, the CFBs part of LO Comp but David, and I’ll send it around to everybody later, but Garris Horn just did an interesting article about the LO comp from the regulatory perspective. And because so much of it is intertwined into Dodd-Frank that if the CFPB steps away from their LO composition, their point is it actually could put the industry in a worse place because you’ve got, a lot less certainty and there are a couple of significant trap doors. So wherever it goes, it would be really nice if it’s an industry path and not a regulatory path, because that’s what folks are struggling with today, is that the regulatory definition became so narrow that it really impacts how you do business.
[David] Yeah, it’s a great point, Alice, on that note, seeing as you do the Legislative Update. Regulatory versus industry, your thoughts?
[Alice] I think Bill summed it up perfectly because the article I started with in the beginning, the white paper is focused on should there be a modification to the regulation itself that would do away with the current narrow band that they have to work in, that Bill described. And then, so I’m gonna go look that up, Bill now and look at Garris Horn’s writeup on that, or, and there’s, I know there’s some YouTube videos on it also, so that you can all go get to hear both sides on this and you can see that there’s a lot of consequences. It would take the industry, which we don’t do very well. So, we’ll see what happens. We did it on Safe Act. We tried, at different state levels and finally it took federal legislation. I don’t know if we can do that.
[David] A good friend, Troy Garris. Kudos to him. Tap the hat to their, his firm for what they’re doing. By the way, listeners, we had Troy Garris on the podcast on October 11th, 2024. Great podcast. Go back and it’s still relevant today, so go back and listen to that one. We put a link into the podcast in the show notes, so you go back and listen to it. We can stay on this topic and folks, we’re gonna come back to this topic and keep it going because one that needs to happen.
Alice Alvey, Master CMB
She handles development of their World Class Training program designed to support UHM partners and organizational effectiveness.
Prior to UHM, Alice served as Senior Vice President at Indecomm leading the Indecomm-Mortgage U division, Internal QA and Compliance and SaaS technologies. Indecomm acquired Mortgage U in 2013, where Alice was President/Co-founder, providing training and consulting since 1996. Prior to MU she served as SVP of Operations at a national bank overseeing operations for wholesale, retail and correspondent from underwriting through servicing, and compliance.
She has been in the trenches of mortgage lending operations from application through servicing for over 30 years. Her authoring work in training content, policies and procedures and the FHA/VA Practical guides illustrates her ability to bridge regulatory requirements with day-to-day operations.
Alice has been a weekly contributor to the Lykken on Lending show since its beginning in April 2009 and has made her weekly contributions to 450+ episodes!