I’ll gladly pay you Tuesday for a hamburger today.

March 21st, 2011


“I’ll gladly pay you Tuesday for a hamburger today”-Wimpy. Why would it ever make sense to give Wimpy a hamburger today, for the promise of payment next Tuesday? It would not. Payment would likely not be forthcoming.

Would you let someone else tell you how much you can earn?

Why would it ever make sense for you to yield to someone else to decide what the amount is that you should earn for a living?It would not. But the United States government, courtesy of the Dodd-Frank bill, for the protection of the citizens, has decided that mortgage loan officers have to agree to make the same percentage for each loan, regardless of the circumstances.

Loan officers have to pick their compensation?

Each loan officer in this great, allegedly free market society of ours, has to pick their own compensation percentage per loan by this April. The historical standard has been around 1% give or take. So if someone wants a $300,000 mortgage, the gross earnings are usually $3,000 or 1% of the loan amount, of which the loan officer gets their split. But, what if the loan amount is $800,000? What if the loan officer wants to decide that they would work for less than their split of $8,000? Before Dodd-Frank they could drop their interest rate, work for less commission, and be competitive to get that deal. But as of April 2011, if they have decided to earn 1% on each deal as their flat rate commission, it is against the federal law to alter that and take a lower commission!

What about small loans?

And what if someone wants to borrow money for a $60,000 mortgage? And what if a loan officer decides that they need to earn extra commission to even consider doing that loan? 1% of $60,000 is $600. And if the loan officer gets a 60% split of the gross commission, that is $360 paid to them. And then after taxes you might have enough left to buy groceries for the week. Is there any incentive to do that loan? Prior to Dodd-Frank loan officers could try and earn extra as an incentive to work with the smaller loan amounts. Will Dodd-Frank result in less willingness to do the smaller loans? My opinion is that some lenders will have minimum loan amounts, and below those minimums they won’t even consider those loans. Such are the unintended consequences of government action.

The larger loans are subsidizing the smaller loans?

So now large loans won’t get as good a deal as small loans, the larger loans are subsidizing the smaller loans. Now a $800,000 loan will likely not get as good a deal as the smaller loans, unless there is a loan officer who happens to have agreed to work for .50 instead of 1.00%. But who will agree to cut their revenue in half on all their loans in the hopes of being competitive for the occasional large loan amount client? “None”, is the answer.

The government gets more involved

Now we have large scale, bureaucratic, federal government, getting involved in how individual loans should be priced. Hmmm, this should be efficient. Apparently a few dozen smarty pants senators, legislative aides, and faux economic experts think they can better price millions of loans each year, than the tens of thousands of lenders, loan officers, and banks operating within a free market consisting of home buyers, sellers, Realtors, and others. Whatever happened to free choice, and a buyer’s right to go elsewhere, shop for a better deal, and for a loan officer’s ability to choose to make more or less on a loan depending on circumstances?

And who said the Feds were moving towards privatizing, partially or completely, Fannie Mae and Freddie Mac, to get the government out of the mortgage game? Sure they are. The government can’t keep their hands out of anything! They build turtle bridges for $1.4mm and pay for the study of Chinese prostitutes for $700,000. Surely they should be involved in the mortgage business to the point of setting pricing, since they are capable of taking on weighty matters such as turtles and Chinese prostitutes. Unreal, truly unreal. It’s almost as if I fell into a deep, Rip Van Winkle like trance, and woke up in Eastern Europe in the early 1900’s, where Czar’s told me how to run my business. But no, I am not in a trance, its just the modern day United States. How sad.

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Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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