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Change how we are paid??? Something to think about...

By
Mortgage and Lending with Alterra Home Loans

 I just had a GE repairman come to my home yesterday to look at my freezer (Monogram) to diagnose what was wrong with the ice / water dispenser.  As I thought, the motherboard had gone bad.  For this 5 minute diagnosis (it may have been more like 3 minutes) we were charged a $75 trip fee.  We were told that this is a common problem and that GE will probably help us with the repair costs.  At any rate, it got me thinking about how we are paid as loan officers - and Realtors, for that matter.

Realtors and loan officers both do a lot of work for free while incurring expenses.  Since I'm not a Realtor I can't speak for their model, but loan officers often spend time taking applications, running credit (which costs money) and running the loan through automated underwriting systems (which costs money).  Depending on the closing ratio and other factors, a loan officer may take 4-10 applications for every 1 closing.  It got me thinking that perhaps we as an industry should start valuing our time and service a bit more and get back to charging an application fee of, say, $75.  We could also charge for the credit report and automated underwriting system charges. 

Then I thought we could take that a step further and charge a fee for reaching specific milestones.  This would help us to earn our pay as we go instead of all at the end and it would make the customer less likely to jump ship to another loan officer who is quoting an unreasonably low rate just to get the business.  When the loan closes, we could get 1 - 2 origination points instead of the customary 2 - 4 points depending on what was paid by the client throughout the process.  All of the money the client has paid would show up on the HUD settlement statement but it would allow us to get paid if loans don't close and it would force clients to manage their money a bit better since they wouldn't need to save such a big chunk for closing costs.

The Frank - Dodd act will drastically change how loan officers are paid on April 1st unless the lawmakers grow a brain and realize that what they are doing isn't good for the industry or the consumer.  Their new law will limit the consumers' choices on how to structure their deals and it could very well force another mass exodus of loan officers.  While there will be more business for those who are left, I anticipate huge delays for the deals in the pipeline and the remaining loan officers would be paid much less per loan.  By charging for specific services (application / pre-approval) and / or milestones reached, loan officers could still make decent money - as a percentage, anyway.  I think the Frank - Dodd act needs to be changed so that clients can have the choices they have always had, but either way I think we should look at changing how we are paid and stop working for free - this goes for Realtors, too.

I'd love to get thoughts and feedback on this so feel free to voice your opinion and give ideas.

 

Posted by

D. Jed Wunderli

Certified Mortgage Planner

Alterra Home Loans

702-812-1214

Larry Bettag
Cherry Creek Mortgage Illinois Residential Mortgage License LMB #0005759 Cherry Creek Mortgage NMLS #: 3001 - Saint Charles, IL
Vice-President of National Production

The most important thing is that we have time to act.  The republicans have re-opened this journey and Im' hopeful that changes will occur.  Otherwise, it will, mark my words, destroy lending.

Nov 30, 2010 12:53 AM
Karen Crowson
Coldwell Banker Residential Brokerage - Rancho Bernardo, CA
Your Agent for Change

Speaking from a Realtor's point of view, I think there should be an upfront charge for Realtors, where sellers would consider their options more carefully.  If they decide not to sell and take their home off the market (perhaps for undisclosed reasons), there should be fees involved. We have raw costs outside of time expenditures that I feel should be reimbursed.  I think there's a saying somewhere that when something is free, there is no perceived value.  Maybe that's part of why our industries score poorly from the consumer's point of view.

Nov 30, 2010 01:00 AM
Jane Jensen
Century 21 New Millennium - Arlington, VA

Sometimes when clients say we make alot on a deal I say "yes, we do". But there are very few other professions that get paid nothing unless a deal happens. We work for free until then. I know some attorneys work like this but I think they are the minority. Part of our commission factors in the risk factor that we have in doing many, many hours of work with the possibility of no payment. It's a unique scenario but one that seems to work for this business. I think most clients are used to the model of paying at the end of the deal (lenders costs and realtor costs). I am not sure how quick an adjustment to a pay as you go model would be. Maybe I'll run it by my clients and see what they say. I'm pretty sure I know though. 

Nov 30, 2010 01:03 AM
John H. Mason
Harry Norman, Realtors - Cumming, GA
Associate Broker - Realtor; Atlanta Georgia

Jed, This topic was discussed at great length during one of my recent MasterMind roundtable meetings. Some Agents are actually getting a retainer fee for those up-front marketing expenses to be paid back at closing. Since I am a relatively new Agent in this market, I am concerned that requesting that fee up-front could / would cause a potential homebuyer to choose another Agent.

To your point; a revision on compensation for all of us touching this industry may need a good and long look! 

Nov 30, 2010 01:07 AM
Jed Wunderli
Alterra Home Loans - Las Vegas, NV

Larry - You are correct, we have time to act and hopefully common sense will prevail or I think the same thing as you that the lending industry will be destroyed.

Karen - My thoughts exactly; if clients paid some fees up front, they'd be more thoughtful about the choice they make and they would be more loyal to that choice.  I have experienced many loan officers who quote low rates and fees to steel business only to charge higher rates and fees when all is said and done - I've had clients come back to me after their loan closed elsewhere and tell me that thy should have stayed with me; this might prevent that to some extent.

Jane - There would definitely be some trepidation on the clients end with the change but ultimately it is a matter of educating them about this change just as we educate them on the process and the other changes like the new "Good Faith Estimate" or the HVCC.  With a bit less risk on our part and pay from some clients who don't close, the fee for the loans that do close could be less than it is now.

John - Good point.  I'm glad to hear that others are considering this and I think we need to discuss this as associations (the NAR and the NMBA as well as large sub-groups) in order to effect large scale change.

Keep the ideas coming...

Nov 30, 2010 01:16 AM