Lykken On Lending: Sorting Out LO Comp

*Sorting Out LO Comp*
**By David Lykken**

***If you ask anyone in the mortgage industry today, “What are you stressing about these days?” most would say: “LO Compensation”. Surprisingly, loan volumes being off by as much as 40% to 50% is not stressing folks out. Honestly, I can’t think of anything that has challenged the hearts and minds of mortgage professionals like LO compensation. It doesn’t matter if you are the owner, executive or loan production manager trying to determine which approach to LO compensation is best for your company, or if you are a loan originator wondering how your company’s new comp plan is going to affect your ability to make a living. Everyone is stressed to the max over all this.

****And frustrating matters even more, the Feds have done almost nothing to help answer many legitimate questions that have arisen from this “new rule”. Even after the March 17th Webinar put on by the Board of Governor of the Federal Reserve System entitled “Regulation Z, Loan Originator Compensation,” more questions remain unanswered then answered. As the saying goes, “After all has been said and done, more has been said than done.”

****I believe technology can be a powerful tool in finding solutions to things like LO Comp. Over the Christmas holiday I had the idea of using the social media technology of LinkedIn to sort through the confusion and find a solution. After searching the Internet and finding nothing, I started the LinkedIn “Discussion Group” called “Loan Originator Compensation Changes & New Rules”. The membership of this LinkedIn group has grown to approximately 2,300 industry professionals. In this case, one of the benefits of the social media site LinkedIn, is that it has allowed executives of companies of all sizes to connect with loan originators and bounce ideas off other top originators across the country as well as get the thoughts of subject matter experts (attorney, accountants, consultants, trainers, etc.) that I invited to the discussion group. As a result, many companies are in the process of releasing compensation plans with a greater degree of confidence knowing that their plan has been thoroughly vetted out online.

****Another technology our consulting firm used to sort out and work through the problem is an old fashion spreadsheet. While a spreadsheet cannot resolve areas of ambiguity related to the language in Reg-Z’s “new rule”, it can help us logically structure arguments based upon the absolutes of the new rules and then zeroed in on the variables. This has allowed our clients to present their LO Comp plans in a meaningful way to their loan originators. With tools like a well-thought-out spreadsheet, loan originators are able to see on a comparison basis what they would have earned under their old compensation plan compare to what they will be earning under the new compensation plan.

****So in times of stress, remember technology can be a helpful tool to cut through the confusion and get to a solution that is both practical and profitable.