|Closer Look at Proposed LO Compensation RuleWebinar discusses CFPB proposal
Oct. 15, 2012
By JERRY DeMUTH MortgageDaily.com
|The Consumer Finance Protection Bureau’s current proposal for loan originator compensation, while clarifying many aspects of the current rule, also could lead to violations of some state laws, or even Internal Revenue Service codes, according to a recent online event on the subject. The deadline for public comments on the proposal is Tuesday.
The presentation was made by three attorneys with the mortgage banking and the consumer financial services groups at the national law firm, Ballard Spahr LLP. They spoke during a webinar on the proposed new rule sponsored by the Washington, D.C.-based firm.First, the definition of loan originator is “very broad” under the proposed rule, said John D. Socknat, and even includes persons who assist consumers by advising them on credit terms, preparing application packages, collecting application and supporting information, or even advertises or otherwise communicates to the public that they provide such services. The latter, he said, would include business cards, rate sheets and promotional items.
But managers and administrative and clerical staff are excluded if they do not arrange, negotiate or otherwise obtain an extension of credit for a consumer or if their compensation is not based actual loan originations.The proposal also “finally addresses” the anti-steering safe harbor issue, said Richard J. Andreano. The key to complying, he said, is that loan originators have to present the loan with the lowest rate to consumers, even if it includes more points than they said they are willing to pay and if they qualify for that loan. The current rule does not specifically require originators to present to borrowers the loan with the lowest rate, only the one with the lowest rates and fees.
“But the originator can’t impose points and fees on a loan unless it results in a lower rate. But this only applies before the consumer has received the good-faith estimate and since this is occurring before the good-faith estimate,” Andreano pondered, “how do you determine if they may not qualify for a loan?”
Healso noted all of this is in the preamble to the proposed new rule, not in the section on pricing policies. That section sets forth ties between specific increases and decreases in rates and the size of points and fees, with a specific rate reduction for each additional point.
“These are very complex proposals,” he commented. Andreano also pointed out that the CFPB, which originally had considered a flat-fee approach to originations, with the same fee applying to all loans, now proposes a “zero-zero alternative.” Under this proposal, any originator who receives compensation from any person other than the consumer may not impose on the consumer any points or fees unless a comparable, alternative loan without points and fees is made available to the consumer.
“That’s an interesting concept,” he said.To prevent manipulation of loan qualifications and loan availability, the CFPB, Andreano said, is considering two different alternatives that would either prevent originators from changing their underwriting standards for the purpose of disqualifying consumers from a “zero-zero alternative” or prevent originators from offering loans with points and fees unless the consumer would qualify for a comparable loan without points and fees. The proposed rules, said Michael S. Waldron, also now address the matter of compensation paid on a borrower’s behalf by parties other than the borrower. “This was not addressed previously,” he said, but warned that such an arrangement can be impacted by state laws.
“You have to make sure you follow state law,” Waldron emphasized.Waldron also noted that while the current rule does not expressly address the sharing of pooled compensation, the proposed rule “outright bans” pooled compensation among loan originators who are compensated differently for loans with different terms.
“Point blanks,” Waldron noted, are not expressly addressed by the current rule and may not be allowed under the proposed rule. Citing a CFPB advisory comment on the proposed rule that “there are no circumstances under which point blanks are permissible, and they there continue to be prohibited,” Waldron said, “‘Continue’ is a critical word. It truly shuts the door on point blanks.” New conditions also are placed on contributions to both qualified and non-qualified profit-sharing plans, Waldron pointed out. When applying these, he said, loan originator participants have to make sure they do not violate Internal Revenue Codes or become non-compliant with other rules.
“There’s a lot of pitfalls when amending qualified and non-qualified plans,” he cautioned.Finally, while under the current rule a loan originator’s compensation may not be changed based on changes to a specific loan’s terms or conditions, Socknat pointed out that the proposed rule would permit a reduction in an originator’s compensation to cover unanticipated increased non-affiliated, third-party closing costs that cause the actual amount of costs to exceed limits imposed by applicable law. However, Socknat said, the proposed rule forbids an originator from agreeing to pay part of a borrower’s closing costs to avoid high-cost loan provisions. The comment deadline on the proposed rule is Oct. 16.
Comments can be submitted to www.regulations.gov.
It is the thought that counts…
The purchase of a gift for a client is not an unusual marketing tactic for a sales person or business owner. For some it is really the thought that counts. We would like our clients to know that we appreciate their business. Of course, it does not hurt that this action invokes the law of reciprocity.
The law of reciprocity indicates that when we go above and beyond for our customers, they will be more likely to reciprocate. It is not as if we can give them a gift and then say—I have bestowed you with this valuable item, now please give me a referral. But in addition to telling them that we care, the gift does make them more anxious to do something for us in the future. While we don’t want to link the two actions directly (gifts and referrals)—you might say that we are paving the way for future referrals assuming we follow the right path in the future.
Any gift we chose can be an effective instrument. Selecting, purchasing and delivering gifts consume two of our most precious resources—money and time. If we are going to dedicate our scarce resources to this practice, we might as well achieve the maximum effectiveness possible. We can do this with some extra thought.
For example, is the gift unique? Are your clients likely to see or receive more than one of the items you have provided? How many calendars might they receive at the end of the year? Why would they be likely to keep yours? Your clients are more likely to retain your calendar because of its useful or aesthetic features—not because it came from you.
What gifts besides calendars might be more unique? Finding a truly unique gift might become a challenge, but the extra thought will be certainly worth the effort if you come up with something with a WOW factor. Want to let your clients know you care? Give the selection process more thought.
While you are thinking about uniqueness, also think about value. Is the gift something that will help the intended recipient? Whether the recipient is a consumer or a business person (or both), we must ask the question—will it make them more productive or make their life easier?
Perhaps the couple has just moved into a house (which you sold or financed for them). What would make their life easier? It could be as simple as two tickets to a movie so that they can take a night off and enjoy themselves. Or perhaps it is the use of a concierge service that will help them change all of their utilities, etc.
Do not assume because your recipient is a consumer that a business gift would be inappropriate. Some consumers own businesses, others are in sales and still others may manage employees. Unless your client is retired, he or she may be just as serious about their business as you are about yours. A best-selling book on leadership may very well be appropriate. Imagine a gift that would change their life for the better. That would be real value.
The rules of synergy require that we achieve as many goals as possible from each action. Gift giving is no exception. From whom are you purchasing the gift? When you spend your precious resources (time and money) what are you getting in return from the vendor? Order from a national distributor and you might receive nothing. Order from a local business and you may start a significant referral relationship.
The act of giving can also be set up to achieve maximum synergy. How much more money or time does it take to announce that the gift is from you and your ______ (synergy partner)? Absolutely no more time or money. But now you are giving value to a referral source who may potentially be much more potent than your client could ever be. Who delivered service to your customers during the process and how could you work more closely with this entity in the future? You can achieve no greater synergy than you could through partnering with effective referral sources.
So in terms of the effectiveness of selecting, purchasing and giving gifts—a little thought can go a long way. Yes, you will show your client that you care—but you can also increase the effectiveness of this marketing activity many times over. All it takes is just a little thought outside the gift box to achieve maximum synergy.
Dave Hershman is a top industry speaker and best selling author and head of the OriginationPro and the Certified Mortgage Advisor Program. Visit http://www.OriginationPro.com for a free trial of OriginationPro’s Marketing System for loan officers, Realtors and financial services personnel.
Most all sales training programs spend time teaching advanced closing techniques. We train sales people all about tools that can help solidify the deal.
Perhaps it is the alternative close— Would you like to meet Tuesday or Thursday?
Perhaps it is the trial close— Do you have enough information to make a decision?
No disrespect to the sales gurus of the world, but these techniques are not worth the energy expended upon them. Today we will introduce the only important close. Use it correctly and your business will increase—guaranteed! Even better, no training is necessary.
What is this close? We need to say Thank You. We need to say it more often, we need to say it in the right way and we need to make it part of our marketing plan. First, we will address the importance of these words. The importance goes to the very core of marketing and sales.
What is the goal of marketing? The goal of marketing is to garner positive response from clients. The best way to receive the right type of response is to differentiate yourself from the competition. Think about this for a moment. In America today—do the people who serve you say thank you enough? If you say thank you more often you will actually be differentiating yourself from the crowd. Companies spend thousands, even millions of dollars to appear unique. This is a bit easier.
The second reason these words are so important involves the goal of sales. We all have been told that people do business with people they like. Despite this fact, we continue to load sales training with techniques to overcome objections. What we should be stressing is techniques to help our customers respond to us. Well, people like people who are appreciative. It is as simple as that!
Now, let us move to the three aspects of saying thank you upon which we seem to fall short. First, we do not say it often enough. We feel that you should be posting the words thank you right in front of you every day. Forget posting your goals, scripts or anything else. Post a reminder that every phone call, every email and every other mode of communication should end with a sincere thank you.
And not merely when it is easy to say. It is easy to say thank you when someone refers you an important client. THANKS! Say a sincere thank you when that important client changes their mind and decides to do business somewhere else. Instead of arguing, thank them for the opportunity and also let them know you will be available to help them even if you will not be guiding the transaction. A situation such as this is the real test.
We also do not say thank you in the right way. We say it at the end of the sentences. Instead it should be the subject of your sentences and conversations. We should call clients after a deal closes and we should be calling for the express reason of thanking them for the opportunity to serve them. Not to call and say thanks and how about a referral or two.
Finally, our “thanks” should be an integral part of our marketing plan. How do we integrate a “thanks”? There are many ways, everything from a gift to an appreciation event. Once again, it must be accomplished in the right way. If you give the same rote gift to every client during the year, it tells us that you do not put enough thought into the process.
Gifts should be personalized and should be designed to add value to your client’s lives.
Perhaps your thanks gives back to the community. Think about a project you can support for your church, alumni association or favorite charity. It does not hurt that the members of these organizations become part of your marketing team. This is a great example of integrating “thanks” into your marketing plan.
We understand that this advice is not as glamorous as the great marketing ideas you typically receive. On the other hand, we don’t think you should spend another dime on marketing until you use this most important close in such a way that your business sky-rockets with appreciative clients.
Want great sales articles such as these to send as a personalized HTML email to your top referral partners such as real estate agents, financial planners and more? Go to www.originationpro.com for a free trial of our marketing systems.
Rates are low but loans are very difficult to close. So many of my prospects are under-water or don’t qualify because of income and credit issues. It is hard to keep up a positive outlook when things are so tough. Is there going to be a light at the end of the tunnel? Chris from Nevada
What Can You Do About The Present? There are five things I think you can do right now to help you deal with the present challenges we face. I will address each of these in “Business Planning 2012” webinar December 14. To register go to https://www2.gotomeeting.com/register/135469970 (it will be recorded and also repeated in January for those who can’t make it).
- Start with yourself. The most important sales tool is not what you think it is. It is a mirror. You need to think about how you are holding yourself back. For example, many during this period are depressed and for good reason. However, not only do you have to rise up and overcome these feelings, but you must lead others out of their depression. You can’t improve your deficiencies unless you admit you have a problem, and there are many areas you will need to access. Results always come “within” and any action you take will be less effective without this all-important first step. For the first time in our history, people are questioning the worth of home ownership. You need to be behind the concept 1,000%!
- Decide what is important. What do I mean by important? Rise up over the day-today details and decide what you are trying to achieve. This is exceedingly difficult in an era in which many are scrapping to stay above water. However, if you take your eyes off the brass ring for a long time you will lose your purpose. What are long-term objectives? How about retirement and health? How about education of your children? In this day and age, it may be getting above water on a house. This is a perfect example. If you pay off your consumer debts, you can then attack paying off your home loan. This is not going to happen in one year, but it is a plan you need to put into place today. All goals are achieved through the first step.
- Set your goals for next year. While the big picture is important, you will not get anywhere without taking care of the “medium-term” picture. This means that you need to decide exactly what has to be accomplished next year in order to achieve progress with regard to the big picture. Once you have set these goals, make sure they are publicly stated. You must make a commitment.
- Now you must segment these goals. Moving from the big picture to tomorrow, what exactly must you do in order to achieve next year’s goals? I call this “drilling down.” You must be very specific in this regard. In essence, in this segment you will be building your marketing plan. That means the identification of targets, tools and actions that will help you achieve your goals. And the key is specificity. You must know exactly what you are going to do with regard to each target and what you would like to achieve. It is not enough to say–I will get more business from this referral source. How are you going to do that? What actions will you take and often will you take them and when will this take place?
- Remove implementation obstacles. Remember all the plans you have made in the past that have not come to fruition? There were implementation obstacles in the way and you could not overcome them. Some are external but the solutions are controlled by you. What obstacles do you face every day that get in the way of doing what you know needs to be done?
Don’t turn your customers off…
In a tough market, the last thing we want to do is make it harder to get referrals. While sales people and business owners go to “get more referral” seminars in droves, these seminars focus upon how to ask for referrals and/or how to add value to the transaction to get more referrals. These are all good topics, however, what they don’t focus upon is how difficult we sometimes make it to get referrals because we turn our clients “off.”
This is not to say we don’t do a good job to bring the transaction to closing. It is to say that we do certain things within the process that prevent our clients from becoming an advocate for our business. As we know, we need strong advocates if we want referrals.
The next question is, what do we do to turn our clients off? The most important thing is communication. We are not talking about just returning calls but actually implementing a practice of proactive communication. What is proactive communication? It is a set policy that guides the process. Here are a few facets of proactive communication…
- First, you want to make clear what you will be communicating in the process and when you will be communicating this information. That way you have set expectations. If clients are expecting you to call every day and you wind up calling once per week, you have not met expectations. If you tell them up-front that you will be calling once per week, then you have met expectations.
- Let them know how to best get a response from you. If you don’t return emails quickly, then let them know the best way to get in touch with you is by phone. Of course, it could be the opposite. If you leave all avenues of communication open (including them calling AND emailing because they are not aware of the “right” way), then responses will be that much more difficult.
- Most importantly, you must let them know as soon as there is a problem. Many practitioners think it is best to solve problems before the client hears about them; but if the problem does not go away and it comes as a surprise at the end of the process, the damage can be extraordinary. Let them know there is an issue and you are working to resolve it. Let them know the worst case that could happen if the issue can’t be resolved.
- Finally, you need to make sure you let them know what the process is supposed to look like from beginning to end. If they are not ready for the closing of the transaction, then what could be a smooth closing could become rocky. There is nothing worse for a client than not knowing what is supposed to happen next.
In addition to your ability to communicate, your ability to listen is just as important. You must make it clear from the beginning of the process that you will listen to their concerns and opinions. Nothing is worse for a client than a service provider who completely discounts their opinion. Instead of saying we should not do that, try asking the reason for their suggestion. If you think there are other considerations, present them. Try to give the client options instead of saying no. The relationship should have an atmosphere of partnership, not dictatorship, regardless of your experience level compared to theirs.
Do not push recommendations for other service providers upon them. Yes, you should always make recommendations. You are an expert and you should refer them to experts. Some of them will follow your suggestions and some will not. If they say they have a friend who will do the other work, let them know you are open to working with them. Talk to the friend as they could actually become another referral source. If it appears that the person cannot really service your client’s needs, then you should both come to that conclusion.
Be a professional in every sense of the word. Some feel that professionalism comes from degrees or experience. Those attributes are important, but it is also important how you carry yourself during the process. If there is a problem, do you lose your cool or do you become a leader? That is what a client is looking for, a leader of the process. How well do you lead?
From our experience, the lack of referrals we obtain from our clients can be attributed just as much from the way we conduct ourselves within the process as compared to how we ask after the process is over. We are not saying that sales seminars are not important, but if you do not take care of your clients, nothing you do afterwards will help.
ASK THE EXPERT
I am having a harder time meeting Realtors because they are never in the office. So many times they work out of their homes, how can I meet them? James from Oregon
You were never supposed to “meet” Realtors by going into a real estate office–even before they started working out of their homes. Cold calling offices was always the worst thing you can do. So things have not changed in this regard. The best way of meeting agents is through networking, something I focus upon again and again in my sphere marketing teachings.
You are right about the fact that more are working out of their homes. Electronic means of adding value are imperative after you meet them. That is what our newsletter system is all about. It is also what our webinars are all about. For example, on September 21, we are presenting a session on public speaking AND first time buyer presentations. This presentation is great for loan officers and also great for Realtors. Our subscribers get to invite their agents and other referral sources for free. Even trial members get to participate. Go to www.webinars.originationpro.com and use coupon code “60DayOffer” in order to become a trial member. Dave
Interesteded in learning more about public speaking techniques and setting up a homebuyer presentation? ? Register for our webinar in September… www.webinars.originationpro.com . If you are a loan officer–you will be able to invite your Realtors as well.
Public Speaking. There are few tools that are more effective because you can reach more prospects more quickly face-to-face than any other marketing vehicle. You not only reach them, but you can deliver value and establish yourself as an expert at the same time.
This article will take the discussion of public speaking one step further by talking about setting up presentations. It does not make sense to hone your public speaking skills if you don’t have the proper message or audience. In this case, we will use one of the most common events—homebuyer presentations. These are held in every city across our nation by real estate agents, loan officers, closing companies and more.
First rule: Have goals. Do not even schedule a presentation unless you have define-tive goals for that presentation. Of course, increasing your income is most always a goal, but you need to be more specific. For example, exactly how many prospects do you want to attend the presentation? What is the quality of prospects you are looking for? What action would you like them to take? Are there are any secondary goals? For example, is there perhaps a particular listing you would like to get offers on?
Make the presentation unique. A first-time homebuyer seminar is quite common and that is the problem. If you are marketing such a seminar, it is likely that your targets have been invited to plenty of these before. The key to marketing is differentiating yourself from the competition. Homebuyer seminars are a marketing tool. How can you make them different? Here are a few alternative titles that will serve the same purpose but may attract more attendees because they will help advance the perception of the seminars being different from the usual:
- How to buy a home using someone else’s money;
- Overcoming the four obstacles to home ownership;
- Profitable real estate investing;
- The secret to purchasing foreclosures.
You will find the agenda for some of these topics will not be very different than the agenda for the usual first-time buyer seminar, but now you are advertising something that sounds completely different. And this difference will result in more attendees, which is the name of the game!
Use synergy partners. Here is an important marketing rule—-if you are marketing by yourself, you are wasting synergy. There is no better example of the value of this practice than presentations. Having partners can help in several ways:
- They can add substance. Especially if you are not a strong speaker—why not have others on the platform with you? These “others” are experts in their field and add credibility.
- They should market their prospects as well. Four partners marketing their spheres will attract more attendees than one person. Make sure partners understand that they can’t participate unless they are marketing as well.
- They can also share the cost of the presentation. While these seminars should not be expensive, sharing the cost the room and any food or drinks that you serve is going to be helpful.
Consider the ultimate invitee. The ultimate speaker would be a representative from an association, non-profit or even governmental agency. These entities add an unbelievable amount of credibility. If there is a speaker from a local housing agency, a non-profit credit counseling organization or perhaps habitat for humanity, this additional credibility will attract even more attendees. Invites from real estate agents are rejected because consumers think they are going to be sold. Invites from agencies give the impression that they are going to learn.
The substance is important. Speaking of learning, make sure the agenda is set for learning and not just selling. The hard-sell agenda is exactly why most do not do well with attendance after more than one seminar. There are no referrals because there is no perceived value. Make sure there are at least five to ten points of learning for each participant. What can they learn? Some examples:
- Steps to improve their credit score;
- Tax benefits of owning and how to adjust their deductions;
- How to obtain money to purchase;
- The secrets to purchasing foreclosures and negotiating tactics.
If you are not going to deliver value, your seminar will be a “one-shot deal.” The next seminar will have less attendance and soon you will be searching for the next marketing vehicle. That puts you on a treadmill instead of a foundation of success.
Goals, partners and substance. These are all very important. However, we have other points we would like to present before you launch a successful seminar. Next we will cover the timing, location and marketing of the event. They are all important—as well as delivery and follow-up.