Here we are, exactly one week from the implementation of some of the most sweeping changes ever to impact the mortgage industry. Surprisingly enough, the sky has not fallen, zombies have not attacked our beloved landmarks, garden gnomes are still a terrible addition to anyone’s garden and I’m absolutely convinced that Portland completely stole Gerald Wallace from Charlotte. In other words, the landscape has not changed noticeably from last week. Well, on the surface anyway.
As is normal for this type of event, there were some companies prepared for the changes and some completely caught by surprise. Most companies formed committees and consulted with attorneys and other similar companies for guidance prior to implementation. They then consulted with additional experts, had even more meetings and a seemingly endless slew of conference calls, clandestine meetings etc. In short, they did their best to prepare for the new rules and regulations with the tools available.
On the other hand, some companies were completely unprepared for the new rules and some rather bad things will be in store for them. As an example, I actually heard of a Loan Officer that completely exited the business and has no plans to return. In his case, he didn’t have a way to adapt to the new rules and regulations and once the temporary stay was lifted last Wednesday he was history. It was quite shocking to me when I heard the news (he had a good reputation) but I believe this is just the tip of the iceberg.
Under the new regulations, mortgage companies will have to weigh several different factors when setting price. First, they will need to make their rates attractive to consumers. At the same time, they will need to pay Loan Officers sufficient compensation to keep their sales force happy and to ensure a steady flow of business coming in the door. And, while these first two items will be what most consumers and originators focus upon, they still must do what is best for the company and ensure that the company remains solvent and profitable. This is why things seem the same on the surface but are anything but the same when we look deeper. In my opinion, now that Loan Officers are not setting the price for rates mortgage companies will have to be run like actual companies.
The first few months of implementation will be very interesting. Companies will be jockeying for position and tinkering with rates and compensation plans to see what is the optimal combination of incentives, cost and service. It’s going to be a tough juggling act and the stakes will be very high. Inevitably, there are going to be less companies and less competition a few months from now. Not everyone is prepared for this new landscape and I don’t think it is too much of a stretch to predict that we are not done yet with changes. They are still coming.
What will really be interesting is the enforcement of these new rules and regulations. If history is any guide, there will be very little to no enforcement. Personally, I think things are different this time and we will actually see regulatory agencies take an active role in enforcing their rules. This is what has been lacking in the past and I don’t think the agencies that have implemented these rules will make the same mistake again.
When all is said and done, this will become our new normal. Loans will still close, customers will still be able to purchase homes and the world will continue to turn.
Feel free to call or write if you’d like to discuss – I’m dedicated to this industry and will be here to help out should you have questions and/or concerns.