Dodd Frank – One Week Later

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.


4 thoughts on “Dodd Frank – One Week Later

  1. Thanks for the update and perspective Mark. These are big changes, and hopefully once things shake out the cream will rise to the top (you being part of that!). I do worry about the loss of competition which can only benefit the large banks. Mortgage brokers provide a valuable service and the good ones are worth their weight in gold.

    1. Thanks Dawn. It’s going to be a while before we are truly used to this system. I just hope that the agencies and regulators truly do take this seriously this time – this is a tremendous amount of time, expense and effort put into getting these plans compliant.

  2. It’s going to be a tough road for the next few months. Loan officers at non-depository lenders and brokers are faced with unfair competition from depository lenders now, such as not being able to tailor a loan and fees to the clients needs; something big banks still have the ability to do (i.e. decide to charge or not to charge an origination fee and higher or lower interest rates accordingly).

    What are the non-depository lenders going to do to compete and keep good talent? Are they going to start paying 80 cents on the dollar of the loan officer’s health insurance like the big banks do for their employees? Are they going to pay for all the loan officer’s marketing (i.e. websites, direct mail, leads, etc.)? Or are they going to continue business as usual and just pay the loan officers less for each transaction while making the same gross profit from that transaction?

    It’s going to be an interesting couple of months for sure.

    1. Each lender is doing things somewhat differently. At our company we don’t charge a loan origination fee and each rate has a corresponding cost or credit associated with it. Technically we can still contribute toward a consumer’s costs but it will be up to the consumer to pick the rate. To be honest, I see the pressure being on the institutional lenders as much as on the non-institutional. Loan Officers that can generate their own leads will make more working for a non-instiutional lender. Right now there is no comparison for the rate of compensation. Loan Officers that depend on a Bank for their leads will be stuck and will likely make less because of it.

      The big question is whether large institutional Banks will pass on the savings (from not paying originators much) to the consumer. If so, they will be a force to reckon with when it comes to cost and rate. Cost and rate; however, are not the only reason a consumer works with a Loan Officer. I think that as long as non-institutional sources can remain competitive and can continue to attract the more skilled originators they will have a place in the market. The Banks will struggle to attract highly qulaified originators. We may actually see large numbers of originators seeking out non-institutional lenders as opposed to seeking out Banks. It’s going to be interesting, that’s one thing we all can guarantee.

      Good luck to you with your business! 🙂

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