It’s right there on my calendar, circled in red ink amidst various notes and coffee stains: “March 31, 2011, last day to pillage and loot.” And no, I’m not a pirate or a viking – I’m a Mortgage Banker.
According to who you listen to, I may just be the worst thing that has come along in a long list of terrible things. What kind of things? Think washed up rock band reunion concerts, paper cuts, bounced checks, garden gnomes and dog owners that don’t clean up after their dogs. Truly evil in other words. But that’s just one side of the story.
Others see us as benevolent saints, quietly working amidst jumbled piles of paper, bravely doing battle with underwriters to help innocent potential homebuyers buy that four bedroom yurt they have always dreamed of. “Honey, did you recommend sainthood for that wonderful Mark Aalto today?” I am sure the paperwork is all but signed even as I write.
All kidding aside, new rules as passed down by the Federal Reserve go into effect tomorrow, April 1. I would love it if Ben Bernanke calls up out of the blue tomorrow and says (after an awkward moment of silence and some pleasantries here and there) “Aalto, we were just kidding – there will be no rules implemented today. It was all an April Fool’s day ruse. Ha ha – boy did we ever get you!” But such wishful thinking is all for naught – the rules will be implemented and all of our lives will be impacted.
Loan Officer compensation has been a topic of much discussion over the last couple years and controversy surrounding this subject is nothing new. Consumer groups and lawmakers alike felt that consumers were being placed in the wrong programs or being charged higher rates motivated by maximizing profits for the Loan Officer. Starting with applications taken tomorrow, Loan Officers will no longer be able to set pricing for loans.
What we end up with is a system based on a lowest common denominator. In other words, it will no longer be possible for an originator to make more or less money based on the rate or loan program. This effectively will end some of the really bad practices that were taking place. You’re not going to see consumers placed into a loan that isn’t a good fit as a result of greed. Stupidity or ignorance maybe, but no longer greed. On the other hand, it will make it tougher for originators that were utilizing the system in a responsible way. For example, originators are no longer able to offer discounted rates or give credits to consumers. Overall, we have taken away the knives from our utility drawer and replaced them with sporks.
Within a few weeks these rules will become our new normal. Our compensation plans will no longer be the topic of discussion in coffee shops, endless meetings, conference calls etc. Life will go on. Ultimately the costs of lending will increase and our ability to help our customers will diminish. But, loans will still be made. The market will recover in spite of our best efforts to fix it.
And maybe, just maybe, we’ll be able to get our viking costumes out and run around just for old time’s sake.