Loan Officer Compensation Changes: What It Means for Consumers

When I was a young manager, one of the first things I learned when it came to motivating my staff was:

Don’t mess with their money.

Over time, I have learned that it matters little if the end result of “messing with someone’s money” means they get paid more or less on an individual level – I have found that this simple fact remains:

Mess with people’s money, watch them panic until they find out what it means to their paycheck.

And so it has been in the mortgage business over the last 6 months or so. It seems that everyone from loan officers to branch managers to company CEO’s who work in the mortgage business have been overly-focused on what the result of the new loan officer compensation changes outlined in the Loan Originator Compensation Amendment To Regulation Z would be.

And after a last-minute stay by a court for a brief period of time, last week the compensation rules of how loan officers can be compensated are now officially in place.

Which leaves us with a simple question:

What do the new loan officer compensation rules mean for people who are shopping for a mortgage?

Loan Officer Compensation Changes: 6 Things the New Rules Mean for Consumers

When shopping for a mortgage, here are six simple ways the new loan officer compensation rules will impact your shopping experience:

1. It is going to be more difficult for your loan officer to “match” rates.
Prior to the loan officer compensation changes, loan officers had flexibility when it came to interest rates and fees. After the change, there is clearly not as much flexibility — expect to hear from your loan officer “our rates are set at the company level and there isn’t much I can do” when asking them to match a rate from a competitor.

2. The companies with the best rates may also have the longest “turn times.”
In the competitive marketplace, lenders with comparable turn times — the amount of time it takes to complete your mortgage — will now have comparable rates. Lenders who have lower rates will be trying to “make it up on volume” with the logic that having just a slightly lower rate (even .25%) will mean more people will use them.

And when more people use them, this can easily lead to more work than the lender’s systems can handle, which will lead to increased turn times, or possibly even worse — not being able to get your loan done at all.

If you are considering buying a short sale or a foreclosure, and there is a deadline in place, it seems reasonable that you may want to consider a lender’s turn times and ability to get your loan closed before worrying about who has a 5.0% and who has a 5.25% rate on any given day.

3. It is going to be more difficult to get a friend/family/investor discount.
Prior to the compensation changes, it would be common for a loan officer to work with a “good client” to offer them better rates or fees than someone who was a one-time only client. With the new changes, this will be more difficult (if not impossible) to do.

4. Need more hand holding? Don’t expect it from your loan officer.
It is common knowledge with loan officers that first-time home buyers and people who have less-than-perfect credit take more time and effort to help with financing than people with A+ credit, good assets and large incomes.

The new compensation rules will most likely encourage loan officers to spend more time with the A+ credit applicants and as an afterthought, squeeze in people who have less than perfect credit if they have the time. Or energy.

5. If you need to extend a lock, expect to pay for it.
Fairly early on in the mortgage process, your loan officer will “lock” your loan. While there are various terms that you can “lock in” your rate, probably the most common lock term is 30 days.

What if for some reason you find yourself unable to get the loan closed within the original lock time frame? Expect your lender to ask you for money. They may not, but set your expectations that they will and ask them up front whether or not you will have to pay for any lock extension. The compensation rules eliminated the ability to have flexibility with this issue.

6. Needing to get a mortgage under 75k? Expect some lenders to not want to help you.
Many lenders who prior to the compensation change would have helped a borrower obtain even a 30k loan will no longer be willing to do so. The compensation rules now encourage loan officers to go after larger loan amounts — and on top of that, many companies will have minimum and maximum revenue that must be obtained for each loan.

So if you find yourself wanting to buy a $50k condo and are having trouble finding a lender who will help you, it is a direct result of the loan officer compensation rules changing.

Experience tells me that there may be other ways that the mortgage shopping experience will change as a result of the new regulations regarding loan officer pay, but at a minimum I would expect to see these 6 changes for anyone in the market for a mortgage.

My last thought regarding the changes in loan officer compensation is simply this:

Anytime there is a government action that results in fewer choices for the consumer, the end result is going to be that the consumer pays for it in either dollars or frustration.

And one thing is very clear with the most recent loan officer compensation changes:

There are now fewer choices for the consumer when it comes to getting a mortgage.

Justin McHood works for Academy Mortgage and is based in Chandler, AZ.