Loan Officer Compensation – All about the BPS (Part 1)

How do you determine what you can pay a loan officer? 

Loan Officer Comp

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As a branch manager or owner of a mortgage office hiring loan officers is (or should be) an ongoing process.  In that process the compensation question is always one of the most important pieces.

Since the compensation rules have changed it is not as easy as it used to be to determine. Before the comp rules went into effect most managers had a split fee agreement with their loan officers. If they brought in X in fees they received X percentage as a commission.

Now it’s all about the BPS (basis points) or it should be.

The place to start is to look at your offices historical numbers.

What is your total loan volume for a given period.

What are the gross fees that your office generated from that volume.

What does that represent in BPS.

Example:

If your office generated $12,000,000 in loan volume in the most recent 6 months, and generated $420,000 from that production, your office grossed 350 basis points (3.5%) per loan.

Now you need to do the same thing with your overhead – convert it to BPS.

For the same period what was your total cost of operation (not counting commissions) including all salaries?

Now do the same calculation for the same period to determine what you have paid your loan originators in BPS.

The amount that is left after you have deducted overhead and commission is the offices net represented in basis points.

Having a working understanding of your mortgage loan production numbers represented in BPS will also help you determine if your mortgage rates and fees are set correctly.

The next post – part 2 will cover how to use these calculations to determine what you should be paying loan officers.

The HUD RESPA Q&A a Must Read

Have you read the Q&A that HUD published on RESPA?

Most people in the mortgage industry seem to have missed this must read document.

Seller Paid Items, Denial, Change of Circumstance, Important Dates, Escrow Account Information, Loan Summary, among other topics.

The document answers questions like;

  • Can items be listed as POC on the GFE?
  • Are loan originators permitted to process a loan without all six pieces of information included in the definition of an application?
  • May the originator require the borrower to sign consents to verify employment, income or deposits prior to issuing a GFE?
  • Does a loan originator have to show an appraisal fee (or other fee) paid to a third party on the GFE and HUD-1 even if the loan originator wants to cover 100% of the fee?
  • If at the time a GFE is issued it is known that the seller will pay settlement charges typically paid by the borrower, how are the charges disclosed on the GFE?

Do you know the answers to these questions?

I think you may be surprised at some of the answers.

As a mortgage professional this information is vital to your work and understanding the information can help you stay in compliance.

Here is a link to the full HUD document.
HUD RESPA Q&A

I hope this information is helpfull to you. If you are a loan originator, or branch manager looking for better home please visit my home page – www.netoriginator.com –  for information on the opportunity our company offers. We are a full service mortgage lender operating in 30 states.

Net Branch – definition.

What is a Net Branch?

There are conflicting definitions of what a net branch is.

HUD, various state legislative bodies, and the mortgage industry do not always agree on what a net branch is.

The big differences seem to be between the generic use of the term that is used throughout the mortgage industry and legislative bodies that have passed laws that at first glance seem to be against a net branch operation.

The generic term for net branch usually means that a branch manager’s compensation is determined by the (Net Profit) profitability of the branch office that they are managing. States have no law against this and HUD has specifically stated that this is a legitimate form of compensation.

The legislative definition that some States, and HUD have focused on details situations that are not legal.

  • Paying originators and others working in the branch as 1099 contractors  instead of as W-2 employees of the company.
  • The branch maintaining it’s own set of books and bank accounts instead of all monies being managed and dispersed by the parent company.
  • Branch personnel and activities not being managed and supervised by the corporate office.
  • Profits or income from the branch paid to an LLC or other entity instead of all compensation being paid by W-2 to to company employees.

The majority of companies that offer branch management opportunities today use the term “Net Branch” in the generic meaning and most follow all state and federal rules of operation.

For more information on our Net Branch Opportunity visit our FAQ or Contact Us pages.

Texas Net Branch News

Texas Net Branch News

As Texas moves towards full compliance with new national licensing laws,  Douglas Foster
Commissioner of the Texas Department of Savings and Mortgage Lending announces:

Transition of Mortgage Broker Entity Licenses and Individual Mortgage Broker and Loan Officer Licenses Ends August 31, 2010
July 9, 2010
The deadline for transitioning current mortgage broker entity and individual mortgage broker and loan officer Texas Department of Savings and Mortgage Lending (TX SML) licenses to the Nationwide Mortgage Licensing System (NMLS) is August 31, 2010. Beginning September 1, 2010, any request for a license made through the NMLS will be considered a new license request. NO EXCEPTIONS will be considered.

INFORMATION TO ASSIST IN THE TRANSITION

Douglas B. Foster
Commissioner

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For details on opening a mortgage branch office in Texas see our FAQ.

Is the net branch company you are with closing it’s doors?

Many Net Branch Companies will close their doors!

HUD has just release the final rules on the required net worth requirements for mortgage  lenders to keep their HUD approval.

Net Branch Closed?If your net branch company is currently a HUD approved lender the new HUD rule will increase the minimum net worth by 4 times. The old net worth requirement was $250,000, the new one is $1,000,000 plus 1% of volume for mortgage lenders that generate over $25,000,000 per year (meaning all companies with production of over $2,000,000 a month).

Some estimates say that at least 25% of current lenders will not be able to meet the new net worth requirements.

If you ware currently with a net branch group or are considering joining one, you need to make sure that the company is financially able to stay in business.

Net Branch – FHA – HUD

I always welcome comments, questions, and subscribers!

If you would  like to know more about our net branch partner program visit our Frequently Asked Questions page.