Upcoming U.S. rules on how originator compensation has to be structured and recent changes to overtime rules could affect some production industry professionals’ career paths, but it isn’t or won’t be as bad as many fear, according to one expert.
“I think it will have a major impact on career paths, I just don’t know that it will be negative,” attorney Ari Karen, partner at Offit Kurman, Maple Lawn, Md., told this publication. “I think there’s a great deal of fear out there from the employee standpoint, but they have heard a lot of things that are not necessarily true. For example, some think everyone has to be on a salary. That’s not true. Or it’s just going to be flat fees, that’s not true.”
“Some people are probably thinking about getting out because they don’t think they can make any money any more,” he added. “There’s a huge fear they are going to be paid a lot less but that’s not necessarily true. At certain institutions it might happen, at least for a short period of time, but…categorically as a profession that’s not true at all.”
Ultimately, Karen believes the end result of new compensation rules could be a split of originators into two types that are compensated respectively in more conservative/simple and more aggressive/potentially complex ways.
On one hand, those who are strong relationship managers but may have lost ground to some of their more sales-oriented peers may gravitate to positions at larger institutions.
On the other hand, smaller companies that have, for example, 200 originators are more likely seek out and attract with creative compensation packages originators who have more traditional sales-motivated skills.
When asked if the new compensation rules are creating an interest in training and potentially legal review as the transition to new pay structures that match these requirements are put into place, Karen said companies that are moving toward more creative structures will have to have to conduct legal reviews and may want to provide training. He said state mortgage associations have contacted him to explain to loan officers what the rules are going to be and how they will affect them.
New rules that set a new structure for compensation are not set to take effect until next year and have not yet been tested by the courts or enforcement, but Karen said potential legal risk for companies can already be seen in them particularly as they are without legal precedent.
“To think they’re not going to enforce it is, I think, naive,” he said. But he said that he believes some are companies are going to “go it alone” without legal review and/or, unfortunately, adherence to the rules. “When you don’t have precedent or guidance you have people [potentially] trying a lot of things and various levels of risk of compliance.”
While those on the production side of the business recently have been most focused on how changes to rules governing compensation structure will affect their career development, Karen sees these as a less dramatic catalyst for change than, say, the Secure and Fair Enforcement of Mortgage Licensing Act, which requires loan officers to be licensed and make an investment in their careers.
In combination with SAFE and other post-downturn compliance reform, the compensation rules bring about the most change from traditional practices for new entrants to the business, he said. Ultimately, these developments mean that becoming an originator today “has to be more of a well-thought-out career choice” rather than a “let’s see what happens” decision, Karen said.
“Before I can’t tell you how many people had no experience, no training,” he said. “…That’s not going to happen anymore.”
He said he foresees new entrants to the origination business following a career track going forward that is more similar to that traditionally followed by financial planners.
“I do think one of the goals of the regulations is to professionalize the industry. I do think over time that’s going to happen,” Karen said. “I think that also over time loan officers will develop a more conservative mindset about borrowers. They’re going to have to because it is being imposed on and by the institutions they work for.”
