Loan Officer Compensation

Let's keep things in perspective. Any investor in fixed income securities has a wide range of options. Despite poor returns, highly rated companies issued a record $1.111 trillion worth of bonds in the U.S. last year, according to preliminary figures from Dealogic. Economic growth helped boost investor confidence, while rising bond yields helped companies attract investors. I know that this is a very simplistic look, but you can see how this compares to daily sales of agency MBS at about $1 billion, or $250 billion a year: one quarter of corporate debt issuance. I overheard this earlier this week, regarding a New Year's party: "That was fun - we should do New Year's more often." My guess is that California and Illinois are looking forward to changes in 2014. Per Standard & Poors, CA and IL have the 2 lowest credit ratings of any of the 50 US states. Anyone buying a 30-yr muni (general obligation) bond backed by the state of California will earn about 4.75% tax free. Reversing that, it means that California has to pay 4.75% - how does that compare to a borrower obtaining a 30-yr fixed rate mortgage? QM will not help the credit rating of any states, at least directly, although the end result is the creation of bonds made up of mortgages given to borrowers who supposedly will have the ability to repay them. The MBA Compliance Essentials guides are out, and the QM/ATR guide released just before the holiday break has been receiving a lot of publicity and sales are pretty brisk. What makes the program unique is that is lays out a whole operational implementation framework with checklists, lists of controls to have in place prior to implementation, and more. The MBA observes, "We have heard from many members how hard it is to get ready for QM. This guide can get most lenders, particularly smaller ones 80% of the way there. The link to buy the guide is here but again, for $1,000 (assuming you are an MBA member) per 10 copies (the licensed reproduction allowance) it's a really good tool to make sure you are ready." Let's see what folks are writing to me about recently. An owner of a New England independent mortgage banking company writes, "Rob, like most ethical mortgage bankers, I am sick and tired of trying to compete on an unleveled playing field. I would like to know why so many lenders still employ "pick-a-pay" compensation plans for MLOs wherein a MLO can select his/her level of compensation along with the corresponding pricing threshold that the MLO must price to. The issue with this is that in a single office you could have multiple compensation plans and therefore, multiple pricing thresholds. I was under the impression that a company's pricing had to be transparent and that Dodd-Frank only allowed for "regional" pricing differences? Moreover, this has to be a Fair Lending issue as the rate a consumer ultimately receives is totally dependent on what MLO they happen to get on the phone. Doesn't this fly in the face of the spirit of all of this new regulation?" And regarding the general state of the industry, and the role of the agencies, from Sacramento David Ryland opines, "Rob, the dissertation by Scott Chaplin in your 12/28 commentary deflects too much blame upon forces in Washington DC.  I have spent 34 years as a loan originator and, like Scott I did not follow the herd mentality that swept through our industry in the first six years of the new millennium. I spoke out against the practices that would likely end in mortgage default and was astounded by the amount of pushback I received from other loan officers. I was also surprised by the deafening silence from industry management. In the wake of those foolish activities, it is disingenuous to push the blame to the top of the ladder ("Barney Frank and his cronies"). It also robs us of any sense of empowerment to effect change. We had the choice of governance from without, or governance from within.  Our present circumstances are the direct consequence of abandoning self-governance at all levels. Like Scott, I am not enjoying the present lending environment. Lenders and consumers are assumed to be incapable of making sound personal decisions. 'The State' now tells us all what is permissible and prudent. When things were becoming overheated a decade ago, I asked myself, 'Where are the Regulators?  Why aren't they shutting down the operations that have no regard for the financial wellbeing of their customers?' Well, now The Regulators are here and we have summoned them forth by our failure to impose self-discipline and restraint.  As my mother used to say, 'You made your bed, now sleep in it!'" Ed Pinto often writes about the FHA program, and Chris Whalen, Managing Director and EVP of Carrington Holding Company writes, "Rob, send your readers my retort to Pinto." Now that the holidays are over, let's take a look at training and events in the near future. The Silicon Valley CAMP chapter has another important and timely event planned for January 9, 2014. They will be joined by California Real Estate Commissioner Wayne Bell, who will be making a presentation about the Bureau's mortgage lending compliance efforts and upcoming changes regarding its Enforcement Unit. This event is going to be held in downtown San Jose at the prestigious Silicon Valley Capital Club located in the Knight Ridder building. A complete description for the event and registration Information can be found on the chapter web-site. The Mortgage Bankers Association of New Jersey, the New Jersey Association of Mortgage Bankers, and the Pennsylvania Association of Mortgage Bankers will be holding a conference call on QM readiness of January 8th, which will be available for both members and non-members.  Participants are asked to submit questions beforehand to discuss. If you're in the Albuquerque area on January 9th, go listen to Lieutenant Governor of the State of New Mexico & Jon Barela, Cabinet Secretary for the New Mexico Economic Development Department. The New Mexico Mortgage Lenders Association is having a luncheon. The 11th Annual Eastern Secondary Market Conference with exhibits will be held February 5-7, 2013 at the Hyatt Regency Orlando (easy in and out from the airport). It appears to be quite the event, and all the conference information can be found on this web site. Dave Stevens will be there! The MBA will be holding its National Technology in Mortgage Banking Conference and Expo from March 18th-21st in Los Angeles, CA.  To find out more, register, and make hotel reservations, go to MBA. The Federal Deposit Insurance Corporation (FDIC) announced the release of four new videos in its third installment of technical assistance videos to provide useful information to bank directors, officers, and employees on regulatory issues and proposed regulatory changes. These videos pertain to municipal securities, the allowance for loan and lease losses, troubled debt restructuring, and fair lending. "The video on the allowance for loan and lease losses or ALLL provides an overview of applicable interagency policy statements, discusses pertinent accounting standards, reviews measuring impairment and estimating credit losses, and illustrates an effective loss migration analysis. This video is intended to assist community bank chief financial officers, loan committee members, loan officers, and other loan administration and accounting personnel in developing an adequate methodology to establish an appropriate ALLL. The video on troubled debt restructuring or TDR discusses how to identify a TDR, the related accounting and regulatory treatment, and the multiple note concept. This video is intended for community bank loan committee members, loan officers, and other loan administration and accounting personnel. The video on managing fair lending risk summarizes the fair lending laws, discusses the concepts of disparate treatment and disparate impact, and reviews fair lending risk indicators, mitigation strategies, and the components of an effective compliance management system." The FDIC's technical assistance videos and additional information can be accessed here. While we're on the FDIC, for those keeping tabs on bank closures, the FDIC reports "only" 24 banks closed in 2013. That compares to 51 in 2012 and 92 in 2011. Note that if this average percentage decline holds in 2014, there would be about 12 banks closed this year. And mergers and acquisitions continue in the banking sector for various reasons: geographic match-up, cost efficiencies due to increased compliance and regulatory burdens, etc. Here is a list of some recently announcements - there are some big ones. North Brookfield Savings Bank ($215mm, MA) will combine with FamilyFirst Bank ($52mm, MA) into a larger entity that will retain the North Brookfield name. Central Bank ($1.2B, MN) will acquire First National Bank and Trust ($45mm, MN) for an undisclosed sum. Cornerstone Bank ($1.3B, NE) will acquire Bank of Marquette ($35mm, NE) for an undisclosed sum. Bank 7 ($333mm, OK) will acquire The Montezuma State Bank ($99mm, KS) for an undisclosed sum. Union First Market Bank ($4.0B, VA) will acquire StellarOne Bank ($3.1B, VA) for an undisclosed sum. Trust Company Bank ($34mm, TN) will sell two branches to The Bank of Fayette County ($323mm, TN) in an effort to reduce expenses and improve capital ratios. Silvergate Bank ($616mm, CA) has sold a branch to Americas United Bank ($121mm, CA) for a reported deposit premium of 0.50%. Susquehanna Bank ($18.4B, PA) has sold 30 of its branch properties to SunTrust Equity Funding for $57.1mm and entered into a lease agreement through 2028 on 12 properties and 2039 on 18 properties. The move gives Susquehanna a gain of $38mm and boosts its capital ratios. And turning to some recent aggregator and investor news... Fannie Mae, Freddie Mac extend "first look" program for homebuyers competing with cash-rich investors. Franklin American has made several updates to its guidelines for Conventional products, the first being those pertaining to flood insurance for condos and PUD projects.  The master policy must meet FAMC requirements in order for the loan to be eligible for purchase, and borrowers will no longer be able to obtain separate policies.  This is effective with applications dated February 1st and after.  Interest credits guidelines have been expanded to increase the minimum number of days for short pay from seven to ten (for VA and USDSA products in addition to Conventional), and construction-to-permanent financing guidelines have been revised to require borrowers to hold title prior to applying for permanent financing and to allow detached PUDs with modifications as an eligible property type.  Requirements for pooled insurance have been aligned with the industry standard to state that pooled insurance policies are not eligible for condos and PUD projects, replacing previous guidance that allowed attached condos and PUDs.  All of the above are effective immediately. Per AN 4738, FAMC is requiring all USDA Standard Refinance transactions to comply with four new criteria: the interest rate must be reduced by at least 1%, the existing loan must have closed at least 12 months prior to the current transaction, the existing loan must be current for the previous 12 months, and the new PITI must be less than the current PITI. Effective immediately for all products, FAMC no longer allows a Power of Attorney on cash-out refinances, and guidance has been clarified to state that a real estate agent or anyone affiliated with a real estate agent cannot be named as POA.  The Chain of Title requirements have been expanded to allow verbiage such as "six-month Chain of Title clear" or "there have been no documents conveying the land in the last XX months" in cases where there have been no conveyances. M&T Bank has rolled out FHA Plus, its newest SONYMA program.  This combines SONYMA's Down Payment Assistant Loan with an FHA-insured mortgage and allows the funds to be used towards the borrower's 3.5% minimum cash contribution, eligible for purchases and rate/term refis.  DPAL offers up to 3% of the home purchase price for purchase transactions and up to 3% of the lower of the UPB or appraisal value for refinance transactions.  FHA Plus does not require any borrower points or for borrowers to be first-time homebuyers and does not have any income or purchase price limits.  Regardless of TOTAL Scorecard findings, the minimum FICO is 640 and the maximum LTV is 96.5, and Homebuyer Education is required on purchase transactions.  After retiring, I went to the Social Security office to apply for Social Security. The woman behind the counter asked me for my driver's License to verify my age. I looked in my pockets and realized I had left my wallet at home. I told the woman that I was very sorry, but I would have to go home and come back later. The woman said, "Unbutton your shirt." So I opened my shirt revealing my curly silver hair. She said, "That silver hair on your chest is proof enough for me", and she processed my Social Security application. When I got home, I excitedly told my wife about my experience at the Social Security office. She said, "You should have dropped your pants. You might have gotten disability too." And then the fight started... If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog is, "What Do We Know About the Future of the Agencies?" If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what's going on out there from the other readers. Rob (Check out http://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2014 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)