How I Get Paid
|How I Get Paid|
|Commission % is 3/4 of 1%||Industry average 1%|
|Taxes||federal, state, FICA, Medicare|
|Net Commission||after taxes|
|Minus average expenses per loan||marketing, assistants, IT|
|Net profit each loan:|
The above commission/fee is paid by the lender to me, and built into the interest rate. The consumer does not directly pay this fee to me as a closing cost at settlement. Loan officers now legally have to get paid a fixed commission. This means we must each pick a percentage for ourselves, and earn the same percentage on each loan. We cannot cut our fees or the interest rate for a large loan just because that loan brings in more revenue, and we cannot raise fees or the interest rate on small loans that bring in low revenue. The percentage must remain the same on all loans. We cannot offer our services for .5% on a large $1,000,000 loan, and turn around and offer our services for 2% on a $75,000 loan. We must earn a fixed percentage, and as you can see, I have chosen .75% as my fixed fee. Ask your loan officer what theirs is, not many disclose this. And ask what their source of money is, we use multiple sources, in an effort to find the lowest base point to add our commission on top of, so that our final price is the lowest possible to the consumer. Go to Banks I Work With to see some of our sources.
This was meant to level the playing field and prevent gouging. But some wonder what happened to the concept of ìbuyer bewareî. At this point it does not matter, fixed fee compensation is law. Below are what I believe to be some of the unintended consequences of the new federal laws:
- It is going to be more difficult for a loan officer to “match” rates from a competitor.
- Need more hand holding? You may not get it. It is common knowledge that first-time homebuyers and people with credit issues take more time and effort to help than well qualified clients. The new compensation rules may encourage loan officers to spend more time with the A+ credit applicants and possibly spend less time with others.
- If you need to extend a lock-in, you’ll pay for it. Prior to the compensation changes, if a lock-in was expiring the loan officer might offer to pay for the extension fee (usually .125 up to .375 points) out of their compensation partly or totally. The new compensation rules eliminate the ability to have flexibility with this issue. Since we have to get paid the same amount on each loan, we cannot pitch in for extension fees. This is why it’s critical to choose a lender who will get things done quickly and on time. Shop execution and efficiency, as well as price.
- Looking for a small mortgage? Expect some lenders to not want to help you.
Many lenders who prior to the compensation change would have helped a borrower obtain even a small $75,000 loan now no longer may be willing to do so. The compensation rules now encourage loan officers to go after larger loan amounts. And many companies will have minimum and maximum revenue that must be obtained for each loan, also encouraging going after larger loans.
For better or worse, the free market has been taken out of the mortgage industry. Imagine a mechanic saying he had to get $700 per brake job no matter what the difficulty of the job was. Or a plumber being told he had to get $300 for each toilet repair. Or for that matter $50. Plumbers simply would not come to your home for $50! Fixed commission, is it here to stay? We’ll see.