Wells Fargo has apparently decided that
a carrot is better than massive layoffs when the mortgage business starts to
slide. Bloomberg is reporting that the bank, the nation's largest mortgage
lender, quietly revised its commission structure for loan originators on July 1,
a move that should result in larger paydays.
The news service quotes bank executive Franklin Codel as saying the
change "created a lot of desire for the loan officers to go out and get that
extra production. This creates that
little extra incentive."
Wells has increased the top commission
rate from 63 basis points to 70 and merged two lower commission tiers into a
single one that pays 65 basis points rather than 48 or 58. The new rates apply to employees total
monthly loan volume but is structured to define that volume both by number of
loans and by dollar value. This
structure rewards both employees working in high cost markets where loans are
large and those working in areas where loans are smaller but perhaps more
To earn the top rate loan officers
must complete or refer a minimum of nine loans in a month (down from 11 under
the old structure) or bring in at least $1.6 million in loans. The middle tier requires four to eight loans
or $600,000 to $1.599 million in volume. As of July an employee who closes $1.6 million
in a month will earn a base commission of $11,200, up from $10,080. Loan
officers who handle $600,000 would earn $3,900.
Refinancing, which once accounted for
well over 80 percent of all loan originations, has been winding down since
rates increased in mid-2013 and currently makes up 54 percent of originations
according to the Mortgage Bankers Association (MBA). Wells
Fargo's refinancing volume is expected to be around $96 billion by the fourth
quarter of this year, 75 percent below the level in the first quarter of 2013.
Lenders are trying to fill the gap in
originations with home purchase mortgages.
As home sales gradually recover from the housing crash purchase
mortgages are on the upswing and may be a $195 billion business by late 2015, $80
billion more than in the first quarter of this year. But home purchase lending is a more competitive
business that requires closer ties to builders and real estate agents and more
networking. Bloomberg says that large
lenders have recently seen loan officers defect to smaller firms that can close
deals faster and offer more attractive pay packages
Bloomberg quotes MND Pipeline Press columnist Rob Chrisman about
the defections. "If my contacts are
primarily with realtors rather than bank depositors, I can take that business
anywhere." Chrisman pointed out that, "Some
of the guys who were purchase-oriented could make 50 to 60 basis points at
Wells Fargo or 120 to 140 at an independent shop."
The bank has been tinkering with its
commission structure for a while. In a March
2013 attempt to speed up processing, it initiated a reward for submitting
complete applications packages for processing within five days. This April it increased
the top commission an employee can earn on a single loan to $12,500 from
$10,000. The July version boosts the commission rate if employees garner top
marks for customer satisfaction.
The new adjustment is aimed at
recruiting and retaining staff, particularly above average producers. It also focuses the higher payments of loan
officers who draw referrals for local real estate networks and raises the
incentive for referrals from other Wells Fargo employees.