WhatÕ our message about loan officer compensation?

If you’ve ever watched the British Lords fight over issues in Parliament, you know the way we handle conflict in our government is civilized by comparison. Likewise, in our court system we have moved beyond powdered wigs and Revolutionary War long coats in favor of modern business wear. We still let our judges wear the long, black robes out of respect for tradition. And yet, if we listen carefully to the words being thrown around by our industry in Congress and in court over the loan compensation issue, it seems clear that civilized communication has no real connection with effective communication. I get it, though. If someone came up to me tomorrow and told me that while I made $400,000 last year, under the new system I’d be lucky to get a lender to pay me $100,000 this year for the same work, I’d be pretty unhappy. Well, first, I’d have to get over being amazed at having made that much money last year, something I did not d0, but then neither did the vast majority of mortgage brokers. But a few years ago some of them did. Just before the crash, there were a number of loan officers who were capitalizing on the yield spread premium paid by lenders who were, for their part, desperate to get enough volume of the right products to their Wall Street buyers (who were, for their part, apparently uncovering suckers with every rock they turned over). Quite a few of these brokers made a great deal of money in those days. They’d like those days to come back, but they won’t. Dodd-Frank is one reason they won’t come back anytime soon and the Board of Governors of the Federal Reserve is the other. In its final rule, the board determined, among other things, that mortgage brokers and loan officers could not be paid based on the terms or conditions of the transaction, other than the amount of the credit extended. Kissing the YSP good-bye has proven too painful for many. So, two groups that say they represent the best interests of mortgage brokers have stepped up and filed suit against the Fed in an attempt to stop the new regulations from going into effect April 1. The National Association of Independent Housing Professionals Inc. and the National Association of Mortgage Brokers have both filed motions, separately, to stop the new rule. Now, whether either of these groups will prevail in court or not — or even if they should — is not the point of my work here. Personally, my own experiences during the refi boom are hard to forget. I’m not happy that some unnoticed, small print in one of the loan documents I signed sent my second-lien interest rate from 6% to 9% even before my first payment was due. My loan officer knew that little bomb was in there when he sold it to me, and he was paid handsomely for it. On the other hand, are we expected to believe that we have so many Hummers on our roads today because conscientious auto dealers are selling consumers only as much car as they need? Ridiculous. If everyone else can prey on the ignorance of the American consumer, why can’t money lenders? (I mean other than payday lenders and rent-to-own retailers?) These are things I can’t figure out. What I do know is something about effective marketing communication. I see a number of problems here. The mainstream press has already explained to borrowers what the YSP is. And they explained it with extreme prejudice. Any action that looks to borrowers as if it is intended to protect such a practice will efficiently strip away credibility from the only players on our side of the table who have even a shred of it left. If the American homebuyer trusts anyone at all in the U.S. financial services business, it’s the broker. But wait until they find out that their broker will go to court to keep the government from protecting consumers from something as insidious as the YSP. I’m not saying you can’t take legal action if you think it will work. I’m just saying you’d better have a communications program in place to explain your actions to the only people who can possibly keep you in business. The first step in developing such a program is to carefully examine the viewpoint of the audience to which you will appeal. From the borrower’s standpoint, the same industry that criticized anti-foreclosure attorneys for loading the courts with meaningless arguments about internal mortgage processes they don’t even try to understand in an effort to stop foreclosures (something that is a clear benefit to the consumer), now begs for money on YouTube so that it can start loading the court with actions against a change that will protect borrowers from, among other things, the YSP. We call that a public relations crisis in the making. To make matters worse, this isn’t the first time these borrowers have heard such a story. It’s the same problem we had when no one in our industry could do a decent job of explaining why the Mortgage Bankers Association’s decision to walk away from their commercial mortgage loan was OK when millions of potential strategic defaults on the part of homeowners were not. Never has it been more important for our industry to plan out what we will say, say it correctly and then follow through by sharing that unified message with our compatriots in the industry. We all have to be on the same page. When we fail to do that, whether because we’re trying to garner a larger membership among a shrinking group of professionals or because we wax arrogant and forget that consumers think bankers were created as equal as they were, we look confused at best and like liars at worst. That’s one thing none of us can afford right now, regardless of how we are compensated in our jobs. Rick Grant is veteran journalist covering mortgage technology and the financial industry. Follow him on Twitter: @NYRickGrant