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Issue link: http://digital.themreport.com/i/106030
Feature be disclosed in the mortgage documents at the time the rate is locked in. The compensation amount cannot simply be crossed out and changed, according to Lynch. This means a delay and perhaps a failure of the loan to close. "You have a lot less leverage than you had before," Lynch said. "Effectively, the price negotiation power has been removed from the line-level sales person in the mortgage industry," agreed Zugheri. "This is not too uncommon in other industries, so I get the feeling that everyone is adapting to it." Even though it will be "finished" and the final rules will be easily referenceable, the reality is that the rules mean more, not less, in compliance costs for lenders because there will be close scrutiny on the rules, especially in the early years to ensure that mortgage lenders aren't attempting to work around the issue. Equity Loans, for example, has added people to its compliance staff. Other lenders say the complexity of the loan originator compensation rules means that compliance specialists can all but "Everyone I know is shorthanded in the compliance area. Originators with compliance experience can make real good money." —Scott Stuckey, DocuTech Corp. Finishing Touches E ven though the rules have been out since the CFPB bulletin, lenders were expected to be somewhat relieved with the passing of the January 21 deadline because it meant the rules were indeed official and there would be no other changes, said Perez, who discussed the issue in late December 2012. "There will be some sort of clarity when the rules are finalized," Perez said. "Something will be finished." 36 | The M Report write their own ticket in terms of compensation. "Everyone I know is shorthanded in the compliance area," said Scott Stuckey, chief operating officer of DocuTech Corp., based in Idaho Falls, Idaho. "Originators with compliance experience can make real good money." "The end result [of the legislation] is more staffing: more folks in compliance, more people in payroll, and more administrative duties surrounding exception processing," Zugheri said. "More staffing equals more expense. This expense is passed along to the consumer, not only at Envoy Mortgage, but in the industry as a whole. The end result of the loan originator compensation change is more expensive mortgages." The compliance issues have also given a shot in the arm to vendors who sell automation software for commission calculations. The past 12-month period was the best ever for the sales of a commission calculation program from Advantage Systems. Sales of the application doubled in 2012— exponential growth the company didn't expect to see until closer to the finalization date. Before the industry downturn, regulators paid little or no attention to originator compensation, according to Lynch. Compensation and Compliance L enders also say it's much more difficult to recruit new people into the business. The issue is not exclusive to loan originators. Appraisal industry groups have been saying the same thing ever since the market downturn in the last decade. Young people don't want to contend with the various rules and regulations of an industry that doesn't offer the same work-reward benefits that it once did. Even though hard-working loan originators can make a little more than they did before, many industry veterans didn't like the change in the compensation structure, according to Perez. "It has pushed some people out of the business," Stuckey added. "It's led to some turnover and that's a concern because what makes things work is talent—you want talented people doing this work." Between the compliance and compensation issues, the prospective loan originator "who is like I was 11 years ago" is now opting for other career choices, Perez said. So Equity Loans hired a national salesperson who is tasked with recruiting new originators, who must be trained from scratch. He's also trying to recruit some people who have left the industry, but Perez and others don't expect many of those to come back. Non-depository lenders have another staffing/recruiting challenge in that loan officers not working for depository institutions can't operate with a temporary license. They must take and pass a license exam before they can originate loans. So Equity Loans has also dedicated more of its revenue for its training program. "We're not originating mortgages with people who are green," Perez said. "The larger lenders are having a hard time finding people to come into the industry," Stuckey added. "Their income is regulated now, so many are making less money today." Stuckey noted that finding new talent requires "a lot of blocking and tackling," including offering prospective loan officers an excellent support system and aggressively working a contact list to find prospects. Looking Ahead T he new challenges presented by the new compensation rules are expected to continue for some time. With much of the lending industry, government, and borrowers still licking their wounds after the collapse of 2008–2010, the loan originator compensation rules, like many other stipulations of Dodd-Frank, are expected to remain for quite some time, according to lending experts. "Accept this as the new normal," Zugheri said. "There have several industry participants trying to fight the new compensation standard. My advice to them is to adapt to the new pricing environment and develop your own individual pricing module."