TheMReport

26 | TH E M R EP O RT FEATURE "M oney won't create success, the freedom to make it will." —Nelson Mandela Last year was a banner year for mortgage lenders. According to ATTOM Data Solutions, more than 7.3 million loans were origi- nated last year, representing a 2 percent increase over 2015 and the highest total since 2013. However, as lenders grow in scope and scale, the number of compensa - tion plans their human resources and payroll departments must manage increases as well. Federal rules enacted by the Dodd-Frank Act have provided lenders with a framework for what is permis - sible, but there is still tremen- dous room for flexibility in how lenders compensate their loan originators (LOs), processors, un - derwriters, and other origination support staff. Compensation also provides lenders with a competitive advan - tage on the hiring front, especially if industry predictions of declin- ing volume in 2017 prove accurate. According to the May Economic Developments report from Fannie Mae's Economic & Strategic Research Group, total mortgage originations are expected to drop 22 percent this year, as the market shifts from a refinance-driven environment to a purchase-driven one. With market share in short supply, lenders will have to be - come even more creative in their compensation schemes to recruit and retain top performing LOs. As the competition to attract top LOs increases, lenders must maintain a delicate balancing act between offering competitive, and often customized, compensation plans, and maintaining compliance with federal LO compensation rules. By automating this complex process, lenders can free them - selves from the burden of manag- ing multiple compensation schemes on spreadsheets while still retain- ing the ability to manage compen- sation on a case-by-case basis. So how complex can compensation get? D epends on who you ask. While some lenders have restricted their compensation schemes to a handful of simplistic plans based solely on basis points per loan closed, others have ad- opted a more entrepreneurial atti- tude towards compensation. These organizations allow regional offices and, in the case of top producing LOs, individuals to set their own compensation plans. This is where the complexity arises in the form of bonuses, tiers, referral plans, overrides, and a slew of other mechanisms that must be tracked and calculated each pay period to ensure staff are being compensated accurately and as expected. Other lenders have sought to tie compensation to loan qual - ity and efficiency metrics. For example, many lenders have offered higher bonuses to pro - cessors that move loans from processing to clear-to-close within shorter timeframes. This, however, requires payroll staff to keep an even sharper eye on the produc - tion pipeline to ensure accurate compensation is made. Because LOs are covered under the Fair Labor Standards Act, lenders are required to pay a mini - mum wage and must adhere to labor laws regarding overtime and timekeeping. However, few lenders compensate LOs with a base sal - ary plus straight commission. Instead, an LO is generally guaranteed an initial base pay for the first two to four months, either as a salaried or hourly employee. While some lenders are simply writing that initial salary off as an onboarding expense, others are recouping that pay from future commissions that the LO earns, a practice more com - monly known as a recoverable draw. Many lenders are also using this methodology to provide LOs a level of autonomy in making purchase decisions by recouping the cost for software subscription fees, marketing investments or, in some cases, hiring assistants or additional support staff. As LOs are paid these draws upfront, management must recheck draw balances each pay period to determine who is carry - ing a draw balance and whether the LOs' pipeline is sufficient to recover their draw balance at month's end. This would be a dif - ficult task on its own, but when added to the already complicated process of managing payroll for a geographically diversified work - force paid on metrics that can vary from person to person, it's no wonder LO compensation is often characterized as "thorny." Insider Perspectives A s is often the case in the mortgage industry, lend- Information Overload Why lenders should automate LO compensation. By Lori Brewer

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