#ThursdaysThoughts – Today I stick my neck out there for what I believe in. Because I love helping brokers set up their businesses to win. I help mortgage Broker’s grow all aspects of their business. From expanding their lender roster (partnering with me) to helping them recruit LO’s, to close current loans, to even business set up and lead generation. I am more than just an AE to partner with. One of the most misunderstood aspects of Brokering loans would be that a Lender Paid Compensation plan needing to be selected for each lender has to be the same amount.
This is in my opinion (I am not a lawyer) 100% false. And a business owner (broker) can absolutely align themself with various compensation plans with various lenders to be competitive on all products in their market. FHA business is different in pricing, qualification etc, than conventional business. Same with JUMBO loans and non-qm products. I do recommend you align your business LPC with what will be competitive offerings in your area. You DO NOT need to align every lender paid comp plan at the same level. There’s been some talks online about this recently and I wanted to give my input.
Disparate Impact occurs when a policy or practice is applied equally to all applicants but has a disproportionate, adverse impact on applicants from a protected group. That’s the definition, however when dealing with loans, don’t just think “protected group” think of everyone. If you do this at all times you will be doing the right thing for clients. In my example, if you were to be making all LPC agreements at 2.75% because you do primarily FHA loans in your area, you may be having a negative impact to those that are not FHA loan applicants. So when you get an A+ client, now your “rates” align with a comp plan focused around a different product. And your rates could potentially be “not competitive”. Have you had disparate impact to those conventional clients? Again I’m not a lawyer, but to me this isn’t doing the right thing for your business or potential clients that fall into this category. Weather they are a protected class or not, you should think of everyone. That’s my advice. And you should align yourself to be doing the appropriate business with each lender that they specialize in. Some may be more of a conventional lender, align yourself with a LPC plan that will make your rates competitive in your area. You do not need to make your LPC the same as another lender that does “government” business at a higher comp rate or vise versa. Infact, to me if you do that, you’re effectively doing a “disservice” to your potential clients. This is the FREEDOM that BROKERS have. And allows them to align their pricing just like a retail bank does with different margins on different products. There is no difference in my opinion.
As long as you look to be aligning your business in the best interest of offering your prospects in your area the best deals you can – and be a profitable business – there’s no wrong doing. Some will say the opposite of this that all brokers need the same comp, to you, I then ask, is all your margins on a secondary level the same? Because if not as a lender your profiting more on certain products versus others, are you creating disparate impact inadvertently? Most will say no and that it’s not the same as a Broker, some will argue it’s the business owners discretion to set profit margins. The broker is doing that very same thing. So no, you do not need to set all compensations across all your lenders the same. You would NOT be doing the right thing for your clients. Especially when you have options. Align compensation plans with the products you will use with that particular lender. But don’t tell me 2.75% across the board is the best for all borrowers. IT’S NOT! #RantOver #SellWell