Here’s an interesting little piece of mortgage news.
According to an internal presentation obtained by Bloomberg, top mortgage lender Wells Fargo plans to incentivize loan officer pay based on loan quality.
While I wasn’t able to track down the presentation, the publication noted that mortgage salespeople would receive extra compensation for submitting “complete loan applications” to loan processors and mortgage underwriters within a five-day period.
In return for their speed and organization, Wells Fargo would pay salespeople an additional 0.03% on each loan that meets the requirements for the new rule.
On the example $400,000 loan included in the article, it would bump pay up another $120, on top of the $1,720 they reportedly earn before the bonus.
For the record, that $1,720 equates to 0.0043%, in case you were wondering how much Wells Fargo reps make for originating your home loan.
Of course, that’s just an example, and it could well vary quite a bit depending on a number of factors, such as the type of loan, volume, position, etc.
Sign of the Times
The move by Wells is clearly a sign of the times, which is a mix of both extraordinary demand for mortgages and much more stringent underwriting guidelines.
Back in the day, before the boom turned to crisis, many lenders provided incentives to loan officers who originated the riskiest types of loans, largely because they were sold off on the secondary market in a game of hot potato.
So loan officers and mortgage brokers who chose to throw a borrower in an option arm, or tack on a five year hard prepayment penalty, were given the largest yield spread premium (commission).
Clearly this led to one of the worst economic downturns we’ve seen in years, which is why the mortgage game has changed as much as it has.
Now it appears as if the San Francisco-based bank is focused on quality and turn times, as opposed to the type of loan originated.
For one, there aren’t really any risky types of home loans left, and most borrowers opt for fixed mortgages nowadays.
It’s also illegal to steer borrowers into higher-priced loans, so the focus has shifted to getting the loan closed properly in a short window.
Complete Loan Files Key
It’s clear that with demand so high, and personnel so low, mortgages are taking a very long time to close.
In order to speed up this process, submitting complete loan packages is key to closing in a timely manner.
This is actually a good lesson for borrowers as well – you need to get all your ducks in a row long before applying for a mortgage.
That means organizing income and asset documents, ensuring your credit score is where it should be, and addressing any potential red flags if you’ve got anything funky going on.
Assuming you handle all these issues prior to application, your loan process should be relatively quick and painless.
And now that your loan officer is on board, incentives are finally properly aligned, which is surely a good thing for the under-fire industry.