How does a loan officer get paid?
Of course there are many arrangements for compensation. However, here I address the bulk of the loan origination sales force.
How do they get paid? You may think on commission. You may be wrong.
The most common method is sharing in the money earned on each transaction. Being a loan officer (loan originators have many names, I use loan officer on this site) is like a mini business in most cases. So the more you earn the company the more you earn as a loan officer. In a future article I will show you what you may never see, the back end; rebates, SRP, service release, secondary market profit, and other fancy names for rebates. Many pay their loan officers on these profits that you may not see. I am not calling this wrong, I am just informing you.
There are comanies that charge a desk fee, similar to some real estate companies. Here a loan officer will pay a monthly fee plus a small amount on each file. There are companies that charge a flat fee, again the same as in some real estate companies. A flat fee is a fixed amount for each file, the remaining to the loan officer. There are companies that pay the loan officer a percentage of the fees derived, perhaps 70%.
Certainly this is legitimate. More certainly it leaves you the borrower dealing face to face with the person that determines your rate. It is usually up to the loan officer, what rate you are charged and what fees you are charged. They cannot eliminate fees, but they can build them into the rate. I will do a follow up article on this part.
The first bank subsidiary I worked for had a maximum fees policy on what could be charged the client. The limit was stringent, therefore the customer could not be overcharged. It was the only company I have come across that had a requirement like this, on what I call sringent fee limits. I liked the idea, and implemented a policy like this when I formed our company.
What is real encouraging is that loan officers that look for repeat business understand you cannot overcharge people. It catches up with them. Realtors and borrowers see the closing statements. Borrowers are shoppers. It makes no sense to overcharge, yet greed catches up with a few. When you use the Realtors loan officer, you have the benefit of additional pressure on the loan officer to not overcharge. There is a high probability the Realtor will see the closing papers and pass judgement that will affect the future business between the two of them. Loan officers that charge too much don’t get future referrals. Future referrals is what staying in business is all about.
My favorite way to illustrate the point I want to make relates to a loan officer I was fortunate enough to have been referred to work for us. Her name is Colleen McGrath. She is a big producer and planned her transition to us months in advance. I noticed her first 8 or 9 checks were on the low side of the scale we were used to paying. Not just on a couple of files, on all of the files. Some were real small. I called and asked her if she was OK. Of course she answered. Are you happy with the files you have closed here? Sure, why? Well I answered, it seems you aren’t taking home very big paychecks. Her answer was fun and informative, “thats the way I always charge, why do you think I am so busy?”
Lesson Learned.
Larry Cragun
