"Now I See Where This Is Going..." The Dodd-Frank Comp Reform Plans Meet the Battlefield
As many Real Estate professionals know, if not care, the ways in which a mortgage loan originator (MLO)
can be compensated changed drastically on April 1, with the implementation of the Dodd-Frank financial reform bill. The MLO/client relationship had to be substantially retooled in order to assure that both the financing could be completed to the client's/transaction's needs, and that the loan officer could get paid. Depending on the institution for which the MLO works, and the infrastructure of that entity, the compensation plan might be more or less flexible --- some allowing very good autonomy to get things done (as it fortunately is here at RPM), and others being so harsh as to force originators out of the business entirely. I'd guess that most originators' plans are stuck somewhere in the middle.
Barely two months into this change this is what I'm already sensing from the trenches. I'm going to leave out the social commentary or the purported motives of those in Washington. These topics have been covered in great detail on other forums. But I'm going to instead give a "real world" example of what I believe is happening as a result of this regulation:
Realtor is working with Buyer. Realtor refers Buyer to MLO, with whom Realtor has worked for 20 years. MLO works for a lending institution with access, as a result of comp plan, only to specific loan products. MLO cannot be compensated or competitive (for various reasons) with loan product outside of his few select programs. Buyer is not especially financially sophisticated and trusts Realtor and MLO.
As the purchase transaction develops, MLO recognizes that Buyer's scenario would be best served (rate- and cost-wise) by a loan program no longer available to the MLO. MLO has two choices:
- Recommend "in house" solution to Buyer, costing Buyer thousands of dollars extra over the life of the loan.
- Send Buyer elsewhere to obtain the financing that would be most beneficial to him/her.
So Mr. Dodd and Mr. Frank, which do you think it is going to be? Do you really, honestly believe that some between-a-rock-and-a-hard-place loan officer in this real estate environment is going to suggest to a referred, qualified client that he/she walk down the street in order to obtain a better loan? One that this very loan officer could have willingly delivered before April 1?
But never mind. The real issue, I suppose, is that this MLO will not be unjustly compensated. Now he'll essentially just be steering.
Respectfully,
Rob Spinosa, RPM Mortgage 877-270-5959 rspinosa@rpm-mtg.com
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