(Much of the initial disgust – for lack of a better word, and thus the avalanche of e-mails, over the CFPB’s consumer mortgage shopping site has subsided, leaving things relatively quiet. So I decided to post two notes this week, one on LO comp for bond loans, and the other a lengthy missive from an LO who wished to remain anonymous, but address much of the frustration that originators have now, and how it may impact the industry.)
First, industry vet Doug B. sent, “In the more advanced mortgage underwriting circles it is accepted that, at the very least, the very, very least, prophylactic protection is needed to reliably avoid pregnancy and the spread of venereal disease. This is known as the Condom Minimum.” (Love dem groaners!)
Ah, if only it were all word play in residential lending. Take bond loans for example. Some companies love ‘em, some hate ‘em. I received this note from a CEO trying to stay on the right side of the law. “There is not a carve-out in Loan Officer compensation for state bond programs. Some states limit the origination fee to 1 point so if you pay your originator 100 BP you need to pay them the same on a bond program loan and you make no money. I know some of our competitors are not doing that. Why hasn’t The National Council of State Housing Agencies taken this up with the CFPB yet? Are people just ignoring the rule? It is crazy. I have LOs that will do a lower comp to give the borrower the best rate and I am unable to do it. If the LO cannot be paid less, how is this helping low income/first time homebuyers when good honest ethical LOs would work for less on this product but can’t?”
A compliance expert with a bank responded, “The CEO is correct, currently there isn’t a carve out for the state bond programs. Lenders would have to pay their LOs the same amount regardless of what they make on the loan. The CEO states that some of the programs limit the origination fee to 1 point but what about the gain on sale? I can’t recall but I didn’t think that the bond programs only paid par rate but perhaps they do.”
Brad Hargrave with Medlin & Hargrave echoed that. “This is one of ‘those’ issues wherein the Bureau, at least in my humble opinion, has intentionally staked out an ambiguous position in order to provide it with maximum flexibility. But in my view, the best compliance position is that one not lower a loan originator’s commission rate in connection with a state bond program in order to account for the ‘skinnier’ margins associated with these loans.”
Brad’s opinion went on. “I continue to believe that an application of the proxy test (under the CFPB Rule on Loan Originator Compensation) to this scenario will not necessarily result in a violation of the Rule — at least not in every circumstance. Arguably, the borrowers that qualify for these loans qualify only for these loans, and thus there would be no evidence that the LO had the ability to influence the loan product the borrower ultimately obtained. But as Mr. Levy astutely stated recently in your commentary, ‘speeches by high (or low) ranking officials’ are now, apparently, a part of the Rule. (So much for that statutory analysis class in law school, huh?).
“And regrettably, I cannot ignore a statement made by a Bureau attorney during a session on loan originator compensation at an MBA Legal and Regulatory conference in DC last year in which he publicly applied the Rule, and the proxy test, to this scenario, could not adequately explain to the room how the application of that test might result in a violation of the Rule, yet concluded that in the Bureau’s opinion, the Rule would likely be violated if the LO’s commission rate was reduced on state bond loans to account for the margins—and even if the loan was in the consumer’s best interest! Regrettably, nobody in that room pushed him on this issue. Rather, I felt that there was a sense of grudging acceptance that the Rule is, apparently, that which the Bureau says it is.
“And in my personal experience with the Bureau’s enforcement counsel in matters pertaining to the Rule, this is, indeed, the case. The Bureau, at least in my experience, does not engage in nuanced debate with industry counsel about what the Rule says, or doesn’t say, but rather tends to say ‘well, we disagree’ and that is the end of the debate. Again, I agree wholeheartedly with Mr. Levy’s very astute comments—one no longer ‘finds the law’ in statutes, regulations and Official Interpretations when it comes to many legal issues under the Bureau’s authority. Rather, one must read every Consent Order, attend every conference, read every press release, and draw from their personal experiences with the Bureau to divine the best answer possible: may we live in interesting times.”
[Editor’s note: in a related issue, while I agree there is not sufficient LO technical knowledge in-house at the CFPB for the level of detail involved in the originator rules they have written, most think it is notable that it prioritizes having teams of folks from industry to advise the regulatory attorneys and process at all. My bet is that most regulators rely on the CFPB’s exam and enforcement teams for this information.]
While we’re talking about loan officers and their compensation plans, I received this note a while back which seems to voice the opinion of many originators in looking at their current ranks, and their status in the industry and economy. “I am a licensed mortgage loan officer and have been in both commercial real estate and residential real estate lending since the early 80’s, so I had to respond to the L.O. comp opinion from your newsletter. I very much agree with the writer’s point about the age of the loan officers in our business today being an average of 50 years or more. I myself am over 50 and see the eventual unavoidable disaster ahead of us. Any college graduate, or person of similar age, does not want to get into the mortgage business because of the ‘black eye’ and horrible reputation of our industry. Most of the younger generation equates this business to ‘used car sales’ and have heard the horror stories about not getting paid and having no protection from the courts about that issue. That perception will be very difficult if not impossible to change. I have to strongly disagree with the writer’s comments that the loan officer’s compensation has remained the same over these last trying 7-8 years, while these ‘poor’ owners making millions of dollars have seen compliance and other costs sky rocket. I would suspect that if the compensation was as good as in the past, our industry would be flooded with young professionals begging to be a mortgage loan officer.”
The note went on. “One only needs to look at Castle and Cooke to get an idea of the disparity. A $13mm fine by CFPB does not damage the ownership’s pocket book nor deter them from the same acts committed. However, it may be some of their L.O.’s ‘took one for the team’ in this circumstance. It also may be that some of these owners are the same ones responsible for the problem we are experiencing currently since 2007. I know for myself, as well as thousands of other L.O.’s, our income has been cut by more two thirds since the 2007 crash.
“In the same discussion, the ownerships of most all companies have just not come to grips with the fact that with the licensing laws for LOs, (NMLS) there has been a huge number of people that have either had to leave the business, or voluntarily left. The pool of LOs is steadily shrinking and is mostly finite. More and more retire or move to other jobs and careers for income, morale stability, and less stress. The revolving door will soon be empty and closed. Retention of educated and smart people is what keeps any company alive and strong. I do not believe that current mortgage company owners see their companies as an organized ‘going concern’ into perpetuity, like we all learned in business school and graduate school. It seems like they have very thin financing and little to no liquidity from month to month.
“I also do not have faith that our current leadership in this industry has the appropriate moral or ethical desires to solve the problems that plague the business. Most of the support staff and managers I have seen need to take remedial Math, English and Social Skills to work in today’s environment. We are dealing with a personnel disaster that is not historical of our industry or country. Our industry is staring down an endless abyss that we may not be able to avoid. I really hope for all of us that I am wrong, but, I am also a realist and see things as they are.
“Elimination of the uneducated and dishonest is a good thing because it rids us of the ‘bad apples’ and the ones that committed the majority of the loan fraud. Many of us at the ‘lowly’ LO level, have college degrees and post graduate education, as well as owning or managing mortgage companies in the 90’s and 00’s. As a direct result of our backgrounds and educations, we are typically immediate threats to the uneducated, corporate butt kissers, and the uninformed within an organization. ‘Remember the people you stepped on the way up the ladder, you will see them again on your way down.’ We are demonized as threats to someone’s position so we must be eliminated instead of appreciated for what we offer. A long time peer of mine that taught me Income Property Lending in the 80’s said, ‘The commercial real estate lending business is a gentleman’s business, but the residential side is nickel and dime, slimy and dirty. Stay away from it.’ Is that ever true these days!
“I understand that the costs in our business have increased. So have the YSP and SRP that these companies make. I am not naïve enough to not understand the secondary market and pricing on warehouse lines for mortgage bankers. I also believe that most of the current LOs throughout our industry are smart and well versed in the mortgage loan business. But, some many of us are so beat up since 2007 that we do not participate in MBA and other organizations that represent us collectively and that will surely be the demise of a once proud business.
“I have seen since 2007 the companies that come into the mortgage business seem to be only interested in lining their own pockets, as well as all the other people ‘at the top’ in an organization, while putting the LOs at the very bottom of the food chain. So, wherever the writer of the piece in that article lives, please let me and all my other associates know so we can come to work for him and live happily ever after.”
The loan officer finished with, ““I am a strong republican free enterprise individual and do not like government meddling in our business. We have not seemed to be able to police ourselves after all the past improprieties. However, maybe having a dreaded ‘Union’ represent mortgage loan professionals may be the only answer to fairness and respect. I hate to say that at this point, I might welcome that terrible idea. I have seen numbers of loan officers over the last twenty years get deprived out of enough money to start their own Federal Bank. Unfortunately as this Wall Street mentality of ‘here today-gone tomorrow’ and ‘I got mine’ continues, I only see our industry being reborn and run by only government bureaucrats as LOs and operations managers. God help the consumer then.”
Three girls worked in the same office for the same female boss. Each day, they noticed the boss left work early.
The girls decided that the next day, when the boss left, they would leave right behind her.
After all, she never called or came back to work, so how would she know they went home early?
The brunette was thrilled to be home early. She did a little gardening, spent playtime with her son, and went to bed early.
The redhead was elated to be able to get in a quick workout before going on a dinner date.
The blonde was happy to get home early and surprise her husband, but when she got to her bedroom, she heard a muffled noise from inside.
Slowly and quietly, she cracked open the door and was mortified to see her husband in bed with her boss! Gently, she closed the door and crept out of her house.
The next day, at their coffee break, the brunette and redhead planned to leave early again, and they asked the blonde if she was going to go with them. “No way,” the blonde exclaimed. “I almost got caught yesterday!”
(Copyright 2015 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)