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#1010789 - 08/02/08 05:33 AM fair lending
BeachGirl Offline
100 Club
Joined: Sep 2001
Posts: 206
Myrtle Beach, SC
Our mortgage loan officers have the ability to set pricing and fees at their discretion. Their compensation is based on the total revenue of the loan (SRP + YSP + ORIGINATION FEE + POINTS). I know that this is a big red flag and I have already expressed this to the powers that be. My question is how do all the other banks structure their risk base pricing and how do they pay their loan originators. I need some hard evidence that not every bank in America is paying their loan officers this way and allowing them to set pricing & fees. I have to come up with a plan that will eliminate the fair lending issues, but allow the LOs to make money! Please share your plans with me so that I can give them alternatives! Thanks!
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#1011097 - 08/04/08 05:28 AM Re: fair lending BeachGirl
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 79,292
Galveston, TX
Hard evidence is going to be hard to find, but most banks have moved to centrally setting fixed pricing on mortgage loans long ago due to the factors that you mentioned.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#1013026 - 08/05/08 08:34 PM Re: fair lending rlcarey
jap Offline
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jap
Joined: Mar 2004
Posts: 600
IN
Rates and fees should be centrally set. Simply pay the LOs based upon production, rather than creating an evironmen that encourages them to gouge customers. If they do make more based upon loan amount, be certain to have controls in place to ensure that low dollar loans are also being accomodated, a community development lender perhaps.
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#1014913 - 08/07/08 05:31 PM Re: fair lending jap
E.E.G.B Offline
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E.E.G.B
Joined: Jul 2002
Posts: 6,726
the sandy shore
A lot of mortgage companies, even those owned by banks, price loans the way BeachGirl described. Rather than saying rates should be centrally set - which can be hard when you're running a large operation with national markets, what I tend to see is a base price set by corporate and a limit on how much the LO can vary on the price. For example, a limit of no more than 2 points up or down (industry standard.) I do agree that fees should be centrally set though, especially junk fees. (YSP you're not going to be able to do much about, if you're dealing with brokers at all.)

The other piece of that though is very hard line monitoring - any variance of more than the allowed 2 gets charged back to the LO or the branch. Additionally, regular monitoring of loan data including as much prohibited bases information as you can get and statistical analysis of same is required. Look at the DOJ order with Fleet Mortgage from what, 11 years ago? for some ideas on what they had to do.

Base compensation tied to loan originations is definitely an area you can argue though, most reputable places are moving away from that and going with a flat fee structure, or basing it on multiple factors, including # (not $) of loans originated, # loans originated in a specific targeted product or market, cross-sells, # of seasoned loans current and on the books at 1 year, subtracting $ for any compliance dings or failure to follow policy (and of course any variance over the 2%), etc.
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