Wells Fargo's Plan for Slow Mortgage Market: Increase Pay!

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 numerous.

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.