Danny Salas

Loan Officer Compensation Reform – For Real Estate Agents & Their Clients

You may or may not have heard about the new Loan Officer Compensation Reform that went into effect on Wednesday April 6^th.

Typically real estate agents would not know, or even care about how loan officers get compensated however this new legislation has a direct impact on you and your clients.

Without getting too technical about all the details of the new comp reform, it is critical that you at least understand some of the basics of the new rule, and most importantly, how it will impact you and your clients.

“Good news” in how compensation reform will positively benefit you and your clients.

To start, all loan officers, mortgage brokers, and bank loan officers will be required to have a set commission in dealing with borrowers.  What this means is that loan officers can no longer arbitrarily negotiate rates and points and must offer all of their customers the same pricing.  Additionally in the past, a loan officer could change their rates and points to attract a specific customer to do business with them.  THIS IS NOW ILLEGAL.

A loan officer has to decide on a set price and profit margin for their loans and must offer the same thing to ALL of their customers.  Once a loan officer decides on their commission structure, they cannot simply change it to accommodate a specific client.  They must treat all clients equally.  – This is the good news as it eliminates inconsistent pricing as well as discriminatory pricing by loan officers!

The major challenge with the new loan officer compensation rules is that the loan officer can no longer just change the pricing of a loan to appease an unhappy customer or to help them qualify.  The loan officer cannot cut his or her commission to make a deal work.

I am sure that you have had transactions where things started out fine and then something may have gone wrong.  Maybe the customer had more debt than was originally disclosed and it messed up the qualifying ratios.  Maybe the buyer was short on money to close.  The bottom line is that a transaction that started out fine, later on developed a problem.

In the past, a loan officer could simply adjust the rate, or change the points to make the deal work.  The new law forbids a loan officer from changing their commission which means they cannot change the rate or points without approval from the company – period.  The power of pricing choice has been eliminated from all loan officers.

Under the new rule, in order to make the deal work, the company, not the loan officer has to be willing to absorb the loss and that is not always a done deal.  Depending on the company, you now may be dealing with corporate hierarchy that can delay your transaction and put the contract and closing in jeopardy.

Although there are many challenges that are being created for real estate agents and their clients relating to loan officer comp reform, the last major issue is that with the new rules, loan officers must have their commission built into their rate sheet up front.  This is both good news and bad news.

The good news is that now the borrower no longer has to even ask how much the loan officer is making because the loan officer has no ability to adjust his compensation anyway.  The price is the price!

The bad part about having rate sheets with profit margins already built in is that depending on the profit margin the loan officer built into his or her own rate sheet, you can have two different loan officers from the same company offering different rates and fees.  (Sounds crazy doesn’t it?)  Imagine how a customer will feel if they see different rates and fees coming from the same company?  This is where trust in a company can be compromised.

You must be weary of a loan officer that prices his or her loans at rock bottom pricing.  The reason for this is that you now know based upon the previous message that the loan officer who offers a mortgage with ridiculously low rates and points is absolutely getting paid less for his/her services.  This WILL ultimately have an impact on the service they provide to you and your buyers.

We have all heard you get what you pay for….The loan officer that works for a very small commission is the loan officer that is either going to be way too busy to provide you the communication and service your require, or they simply don’t put enough value on their time and energy to close a file.  Either way in the end their pricing will be a reflection of how they will treat you and your client.  In the end you can definitely expect that the lowest price loan officer will undoubtedly provide you and your clients a level of service far below your needs and expectations.

Think for a second about the level of service that low commission real estate agents offer.  They don’t offer the same level of service that you do.  It works exactly the same for loan officers.

I am not suggesting that the highest priced loan officer is the best.  In the end, you and your customers need to shop for the professional loan officer that has the right balance between offering competitive mortgage rates combined with offering you the highest level of communication, knowledge and expertise to get your deal closed quickly

Access Real Estate Lending:

Rest assured, after intense planning, testing and client feedback, we have come up with what we know to be the best solution for you and your clients.  We have created the perfect balance of all the variables to make sure that your transactions are closed quickly, at the most competitive pricing, with the highest level of service and communication that you and your clients deserve.

Our specialty is making sure that:

• Your customer is properly pre-approved up front so we never need to worry about having to attempt to change pricing or a mortgage program to get the deal done.  We do it right the first time.
• We offer very competitive pricing on our loan programs to make sure that your customer gets a mortgage that they can afford along with the communication and service that makes the loan process far less stressful for everyone.
• We close your loans on time so you get paid quickly.

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Online Appraisal Portal

Beginning June 27, 2011 a new resource will be available for lenders and their agents! Fannie Mae and Freddie Mac are opening an online portal that will be for electronically submitting appraisal data files, called Uniform Collateral Data Portal.

The portal is still being constructed but to help in the transition, lenders should begin using the UCDP starting June 27. This process will be mandatory starting March 19, 2012 with conventional loan appraisal report forms to be sent to Fannie Mae having to be sent through the portal before the delivery date if:

1. The loan application is dated on or after Dec 1, 2011 &
2. An appraisal report is required

Lenders and Agents will be able to enter the portal one of two ways:

• An Web-based interface : Easy-to-use! This will let users upload XML or PDF files into the portal. Lenders may prefer appraisal forms from appraisers to be in XML format.
• Vendor-provided solutions that offer an integrated system interface. Fannie Mae and Freddie Mac already have a list of technology vendors that will be providing a vendor solution with an integrated system interface for UCDP.  This list will be updated regularly and is available Here.

Preparation:

To integrate this new web based procedure into your routine, an overview and all details of how to use it as well as Q’s & A’s is available on UCDP by Fannie Mae. This resource page is located Here as well as a PDf version of its overview. This online information center also has resources on job training and aid and a joint GSE call center will soon be available as well.  In the meantime lenders should begin to figure out:

• How they will access and submit files to the portal
• Who in the office will be responsible for registering for this program
• Who is the office will be the administrator who is in charge of creating user access and company profile
• Giving needed information about UCDP to everyone in the appraisal process. Lenders will be able to give permission to an Agent to submit a file for them.

* Keep in mind: The Lender Administrator has to be the same person if your business sends your loans to both Fannie Mae and Freddie Mac. Fannie and Freddie will have individual registrations and so this person will need to enroll with both.

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New Home Remodel Program

Access Real Estate Lending’s
Home Remodel Program

For Minor OR Extensive Repairs

Rate: 15 or 30 Years

Program Summary: Our Home Remodel Program allows borrowers to combine the purchase or refinance of a home with the costs to renovate or extensively remodel the property. At closing all funds for renovation will be escrowed in an interest earning account. After all renovation work is complete, any remaining funds in the renovation escrow account will be used to pay down the principal balance of the mortgage. Soft costs such as architectural services, engineering and permit fees may be financed. Full builder third-party contracts only.

Click Here for PDF

FOR PROJECT/ RENOVATION COSTS UNDER $80,000         

• $795 for three draws
• $150 for final inspection
• $150 for final title update 

FOR PROJECT/ RENOVATION COSTS OVER $80,000

• Additional draws: $175 per draw (number of draws is fixed prior to closing)
• Final inspection fee included in above price
• $150 for final title update

PROPERTY TYPES

• One or two-unit site-built homes

FHA Reminder: MI Premiums to Increase

The News

This past Valentine’s Day, HUD announced a new change for the real estate market. For FHA Loan case numbers on or after April 18, 2011 there will be an annual Mortgage Insurance Premium increase of 25 basis points. The upfront MIP will remain the same at 1%. Any case number that is uninsured by this date will also be cancelled by FHA, with some exceptions.

What This Means

Mortgage Insurance is accumulated contingent upon loans defaulting causing loss. 15 and 30 year loans for single family mortgages will have an insurance increase of a quarter of a percent (.25).  The higher the monthly costs, the lower the loan amounts and offers for buyers. However, this means a higher income is needed for buyers and it also means less for sellers.  As of right now, FHA mortgages are low down payments and therefore a prime option for families of low income, this increase is a strategy for the economy due to the National Housing Act’s MMIF. Here is a reason for the increase given 4 days after:

“We determined it was necessary to increase the annual mortgage insurance premium at this time in order to bolster our capital reserves and to help private capital return to the housing market…Raising the annual premium will enable FHA to increase revenues and have a positive effect on the ongoing stability of the MMI fund, which had capital reserves of approximately $3.6 billion at the end of FY 2010…This quarter point increase in the annual MIP is a responsible step towards meeting the two percent threshold, while allowing FHA to remain the most cost effective mortgage insurance option for borrowers with lower incomes and lower down payments.” – David H. Stevens, Assistant Secretary for Housing/Federal Housing Commissioner

→ At the same time, this move is expected to help FHA and therefore keep it from having intervention, which in a market full of tight guidelines is a good thing.

Check Your Pre Approvals

• 1.15 - 0.9 – = .25 point
• Per $100,000 x .25% = $250 divided by 12 months = $20.83 per month
• $20.83 a month using a 5% interest rate equals 3,880.87  per $100,000 less buying power on your loan amount.

 Illustrations of the Increase

Information From HUD

http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/11-10ml.pdf
http://portal.hud.gov/hudportal/documents/huddoc?id=fromthedeskof021811.pdf

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