Loan originator compensation is still a big question mark out there. The goal is for a broker or agent not to steer the borrower into a higher rate. But basic bond math dictates that, all things being equal - especially risk, an investor will pay a higher price for a higher yield. Some buyers, tight on cash for closing, are offered higher rates so that the lender can cut down or cover the upfront fees. That's pretty simple.
There are a lot of ways to pay a loan producer being discussed under the proposed changes coming up next year. They can receive a salary, a flat fee for units, a quality bonus, a portion of the servicing, income based on pull through percentage, a quarterly bonus, matching their 401(k).
Loan officers can receive additional marketing money, be paid by the hour, a percent of originations, money based on their "compare score". Some have even suggested giving originators income based on the long-term performance or servicing of their loans, like insurance agents. After all, insurance agents develop an annuity over time - couldn't the same be applied to loan officers?
Personally, I have always been paid on a 100% commission per transaction basis. For me, this creates a sense of urgency on every single deal, no matter how large or small. Just because a particular loan is $1mil does not necessarily mean that it is worth any more to me than a $200,000 loan since each transaction is negotiated individually. The small deals in my pipeline are treated exactly the same as the large deals.
When you treat someone with a small loan amount differently, they know it. You risk losing that client as a referral source, and let's face it, referrals are the name of the game.
Also, will a salaried loan originator stay after hours to get a deal done? Doubtful.
Whatever happens, broad sweeping changes to loan originator compensation does not "fix" the market. What you may see is top producers, true technicians of the trade, leaving for positions outside of the industry. Do you want to trust your next transaction with an order taker making $10 an hour? I know my clients do not.