Hello, LOs!
If margins continue to shrink this year and in 2022, I have the sneaking suspicion that your bosses might start coming for your paycheck.
At an MBA panel on margin compression this week, several mortgage executives discussed how high LO comp is – in their minds, anyway – and how to approach the difficult conversations they'll have to have if the trend lines continue.
There are some obvious parallels to 2018. Back then, lenders were coming off a big refi boom. A few big players cut pricing to keep volume up and LOs happy, which of course put other lenders in a precarious position. The key difference today is that the market leaders have more money than ever – it's not crazy to think they could keep cutting pricing to the bone to grow market share.
But for lenders that don't have that type of war chest, they'll have to look at where they can cut operationally. The six-figure underwriters who joined last year are probably out, and the ranks of processors and closing will probably thin. Those 105 basis points you've been receiving might drop a few bps, too.
Are there alternatives? Maybe.
"It's hard to go to your loan officers and tell them they've got to reduce their commissions," said Eric Gates, president of Apex Home Loans. "There are some other tools – we implement dollar minimums and maximums with everyone. And we do have conversations and show the math on that – if they're willing to lower their maximums then they can be more competitive on larger loans."
Apex came up with an LO comp structure where a worker receives a typical base salary plus a bonus during a busy time. When the market slows, they'll go back to their typical levels. I've heard of other lenders doing this with their LOs, too, with mixed results.
As always, I'd like to hear from you on the issue of LO comp. Would you accept a lower commission rate if business slows down? Look for work elsewhere? Is your lender's pricing competitive enough? I can be reached anonymously at jkleimann@housingwire.com.
Before I say goodbye, I would encourage you to check out my colleague Georgia Kromrei's piece on what to do when the CFPB comes for you (HW+). And do check out our coverage of FHFA Director Mark Calabria's position on the 7% cap for second home and investment property loans, which was basically:
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