PERSON OF THE WEEK: Mortgage banking is not just a collection of products, regulations and sums – it also encompasses a wide number of individuals engaged in the process of originating, securitizing and servicing loans. This week, MortgageOrb speaks with Scott Stern, CEO of the St. Louis-based Lenders One Mortgage Cooperative and chairman of the Community Mortgage Lenders of America, about the human element within mortgage banking.
Q: The question of loan officer compensation was among the thornier issues in the Dodd-Frank Act. Is there anything positive that came out of the act's approach to the subject?
Stern: I believe that the one positive step in repositioning the mortgage industry as a trusted adviser to clients and a fiduciary to homeowners is eliminating the incentive that exists for loan officers to increase the rate or change the product they have simply for the purpose of increasing their commission. To the degree that loan officer compensation will not be tied to a mortgage product, I think is a good thing.
As an aside, a doctor shouldn't be paid more for doing a risky surgery than they should be for doing outpatient lathroscopic surgery – the same way that a mortgage banker should not be paid more for putting someone in a subprime loan than they should in a Federal Housing Administration loan if they qualify for it. That helps to position us more as a fiduciary where it puts the client in the best for their circumstance.
Q: On the flip side, what problems will the Dodd-Frank Act's approach to loan officer compensation have on the industry?
Stern: With loan officer compensation being at issue, I'm very worried that loan officers will start to look at other careers like insurance, investment banking, mergers and acquisitions, or selling cars – and say to themselves, ‘Where can I get involved in an industry where I can make a good living, where Congress is not going to dictate my income?’
We need good originators, and we need the mortgage industry to compete with other similar professions inside the financial services industry. Otherwise, it will be to the detriment of consumers and the detriment of our industry if good loan officers are run out of the industry.
Q: This impacts today's mortgage bankers, of course. But what about the next wave of mortgage bankers? Is this profession attractive to college graduates?
Stern: When I graduated from college, which was in the 1990s, being a loan officer was considered quite a good job. It was a job not only where you could make a good living, but – at the risk of turning a cliche – you could help people with the American Dream. But over the course of the last 15 years, the people who believed in the honesty and integrity of mortgage banking have been hurt by the people who used the mortgage industry to enhance their own wealth – at the expense of their clients.
I would say the mortgage industry could be a very, very good place to work. If you come into the mortgage industry, your focus has to be on being a trusted adviser and fiduciary to your customers, first and foremost. If you do that, even with overhaul and Dodd-Frank legislation, you can still make a great living and be able to live the reward of a job well done.
There is no doubt in my mind that a loan officer's ability to make hundreds of thousands of dollars by charging subprime borrowers high overages on loans is done. If that's your reason for getting in the mortgage industry, this isn't the right place for you anymore. But if you want to do an honest day's work for an honest day's pay, help people buy homes and still have a way to earn a very good living if you are very good at your job, the mortgage industry is a great place to work.
Q: For anyone seeking to enter the mortgage banking industry, which particular position would you consider to be most rewarding?
Stern: Of all the positions within mortgage banking, I think the engine that makes the industry work is the loan originator. They're the ones who go into the markets, deal with the Realtors and home builders, and create the demand for their product.
Of course, loan officers couldn't do what they do without processors, underwriters, closers, shippers, insurers and managers. But, to me, origination is the place to be. They're the group of people who get the hugs from the customers when they buy the house, and while I've done nearly every job in the mortgage industry, nothing was ever as rewarding to me as being an originator and helping someone buy a home. If my kids were starting out in the mortgage industry today, I'd say, ‘Be a loan officer!’
