Evolving Loan Officer Agreements: Mandatory Reserves and Good File Delivery

After visiting over 100 shops in the past 3 years, we haven't really seen anything “new under the sun” in terms of loan officer agreements. Sometimes I think all contractual documents used by mortgage bankers originated from the same source. 

But more recently we've come across a few approaches that might eventually be considered the basis for new loan officer agreement practices.  I’m not necessarily promoting these ideas, but they are worth discussing. 

The two additions are:  (1) Mandatory reserves for future losses as a result of repurchase loan issues or early pay offs and (2) Good File Delivery Standards and Criteria when submitting loans to processing. 

Let’s dig a little deeper into these additions...

Mandatory Reserves:  Most agreements have clauses that hold loan officers accountable for issues such as early payment defaults (EPDs), Early Payoffs (EPOs) and borrower fraud.  Many companies don’t enforce these clauses, but a loan officer may be held financial responsible for losses resulting from one of these issues.  One shop has decided to require loan officers to contribute to a reserve fund that would be used to fund all or part of future losses stemming from EPDs, EPOs, and fraud.

Loan officers pay into the reserve by contributing $250 from each loan funding.  The fund maxes out at $5K and the contributions come from the loan officers’ commission. The reserve belongs to the loan officer and is refunded after 6 months of leaving the company, as long as there are no losses during that 6 month period.  This approach is kind of a self insurance policy for loan officers and may provide an incentive for originators to stay focused on risk management. 

Good File Delivery:  One age old problem is some loan officers tend to submit incomplete files.  The application might be missing key data fields or the package could lack the supporting documentation. The outcome:  processors get fed up and perform the tasks the loan officer shoud've taken care of...or the file is put aside and a clear to close is delayed.  Incomplete data and information is deadly for mortgage brokers and bankers.   It increases turn times and deteriorates productivity, resulting in increased costs.  One company has included a detailed list of requirements loan officers must follow when submitting a file.  They called this a Good File Delivery Policy and it was included in the agreement. 

Is this a good idea or does it add to existing loan officer stress?