Loan Officer Comp Changes Actually Benefit Some Brokers

Due to changes in loan officer compensation as mandated by the Federal Reserver Board effective April 6, as well as a clarification from MetLife Bank, loan originators in New Hampshire once again have the ability to be competitive on fixed rate HECM loans.

A New Hampshire reverse mortgage statute that prohibited the use of a yield spread premium in reverse mortgage transactions meant that wholesale originators in the state could only be compensated through an origination fee on fixed rate HECM loans. With large lenders waiving the fees, it became increasingly hard to compete under the new compensation rules.

Throughout the early discussion surrounding loan officer compensation, Reverse Mortgage of New England’s Nicholas DeMasse began to pursue the issue with state legislators, but to no avail. As of April 1, he says, “It became clear we no longer had YSP.”

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DeMasse approached MetLife to find out whether the bank’s definition of “premium” included YSP, and whether the premium could be paid to brokers originating fixed reverse mortgage loans in New Hampshire. Within three weeks, MetLife issued guidance clarifying the premium definition and stating “Since all Fixed Rate HECM loans are priced at a consistent amount regardless of the terms or conditions of the loan, broker compensation no longer meets the State’s definition of Yield Spread Premium.”

“It’s a very important clarification for every brokers originating reverse mortgages in New Hampshire,” DeMasse says. “They can now get paid. Prior to that, they couldn’t.”

The timing, he says, was essential, in establishing the compensation for loans closed after implementation of the new loan officer compensation rules in early April.

“It becomes a moot point because there is no YSP being paid,” he says.

Written by Elizabeth Ecker

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  • “That which we call a rose by any other name would smell as sweet.” Shakespeare had a point.

    As was seen in the Wall Street compensation fiasco, despite public and media perceptions, it was not the amount of compensation which was the problem (since in fact total comp at the financial firms has gone up) but rather how it was calculated and labeled. Labeling may not seem like much BUT it can meet bureaucratic mandates.

    It is my firm belief that far too many brokers did not understand the simple concept of labeling and bailed in fear of the loss of YSP (a mere name) as a result of the April 1st so called Fed comp rule. Others panicked and joined lenders. It seemed they feared loss of a name and forgot substance.

    The real issue which brokers face has never been the Fed comp rule. It is and remains the issue of HUD approved full eagle lenders offering wholesale services to them and of course, what will these lenders require to maintain the wholesale relationship in the future.

    Just as Wall Street survived a redefinition of acceptable compensation, there was little doubt we would do the same except by those who did not understand the simple yet profound Shakespearean concept of a rose. As pointed out in an RMD article not long ago, ones like Trinity Mutual continue to survive and even thrive in the midst of this noise and confusing clamor. Sort of reminds one of sitting on the steps of Federal Hall on Wall St. eating a sack lunch at high noon.

  • Yes, loans can be offered, but it still doesn’t fix the overall harm done to small businesses trying to compete with large retail lenders. Brokering companies are required to offer fixed rate programs with an origination fee set by the lender.  Or give the borrower a much higher rate if you want to lower costs, which is of no benefit to the borrower.  If competing with that same lender on the retail side all they have to do is reduce their costs because a lender can in order to get the loan.  A broker cannot.  The whole premise of a broker is to offer customers options at lower costs and better rates, which is no longer an option on closed end loans for reverse.  Competition has been eliminated and we are already witnessing higher costs to borrowers.  For a loan to have $21,000 of revenue in the back end and our company can only be paid $17,500 with no ability to use any of it to offset closing costs is ridiculous.  We would have credited the borrower $10,000 of costs prior to this change.  The lender wins because they now keep the additional revenue which they will not pay to our company and the borrower sees no benefit with a higher cost loan than what they would have received prior to this change.  Yes, we are making money, but it isn’t fair to the consumer.  The critic must be on the retail side of this business or not understand the economics of these loans and how the recent changes have had a significant impact on our business.  We have witnessed the impact of this ruling 6 weeks in and it does not look very good for the small business or the consumer if the ability to compete is eliminated.

    • I’m with you reverseguy123. This question has been brought up with a wholesaler during a recent conference call (Webinar). The response was nothing short of a spin and meshing of words without substance. I have no trouble being competitive with other brokers(originators), but lose every tme to retailers. 

  • reverseguy123 and revguy1,

    Neither one of you seem to get it.  The Fed comp rule did not substantially change your comp.  It did not even change your ability to compete.  It just made it so you cannot compete on a fixed rate mortgage by fixed rate mortgage basis.  Blame the Fed rule on the Dodd-Frank Act, Senate Democrats, and the President; that is precisely where it belongs.  The Act allowed and in fact all but mandated the Fed to do what it did.
     
    You have the right to negotiate with lenders to get whatever you want in the way of compensation and fees charged to borrowers but not on a loan by loan basis when it comes to fixed rate mortgages.  What Dodd-Frank and HUD did was to make you more dependent on the whims of lenders.  Congress and the President like HUD believe you should be overseen by lenders.  In fact most in Congress believe that mortgage brokers had more to do with mortgage crisis than lenders. 
     
    The vast majority of Democrats in Congress have never trusted brokers to do what you claim you are doing for seniors.  Quit whining.  Be proactive and do something constructive.  Are you supporting the NAMB financially?  Did either of you attend the NRMLA conference in DC and meet with your Congressional representatives?  Many outside of industry see brokers as those who do not have the best interests of borrowers at heart.  They picture us as people who will fool around and fool around with fees to get the sale. 
     
    Here are two clear places where that distrust is clearly seen.  In HERA (the SAFE Act portion) Congress specifically exempted federally chartered financial institutions from NMLS licensing and also its employees.  They do not care about the additional cost burdens it places on us; that is just part of our punishment.  Then in places like California, the standard of care for mortgage loan originators not employed by federally chartered financial institutions has risen to the level of fiduciary.  In other words California is requiring brokers to put the financial interests of borrowers ahead of their own and while that has something to do with cost reduction, that is not what the law was driving at.
     
    Brokers are viewed as selling mortgages with little concern for the consequences to borrowers.  They are imagined to churn as many mortgages as possible even with the same borrower several times a year if possible.  Brokers are seen as cutting each other’s throat to get the sale whether it is good for the consumer or not.  Brokers are looked upon as excusing their ruthless sales activity through proclaiming their front end cost reduction benefits while all of the time knowing the loans they are providing will cost consumers more overall or by their enticements convince consumers to do something which is not in their best interests to begin with.  That is just part of the image problem brokers must hurdle to get more favorable laws and rulings.  I wish us all luck on that front.
     
    You see even though I rarely originate HECMs now, I am a NMLS licensee just like both of you.
     

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