CHAPTER 12
Finding the Best Loan Officer
Getting a good lender and a good loan program can mean little if your loan officer isn’t up to par. In fact, the best loan program in the world isn’t worth a damn if your loan officer can’t close your deal.
12.1 HOW DO I FIND THE BEST LOAN OFFICER?
By interviewing them and asking the right questions. If you thought finding the best lender was a chore, you might think that finding the best loan officer will be even more work. Not true. In fact, the loan officer can help or hurt a lender’s reputation. Finding a good loan officer means finding someone who will answer all your questions or find someone to answer them for you. It also means finding someone who is respected in the community, who has been in the business for several years, who offers a competitive mortgage package, and who comes from a trusted referral source.
Good loan officers return phone calls promptly. Good loan officers treat the small loans with as much care as the big ones. Good loan officers are able to explain the sometimes-complex mortgage process in everyday, understandable language. Good loan officers have your best interest at heart rather than their own.
A bank or mortgage company can spend all the money in the world promoting their mortgage offerings, but it takes only one lousy loan officer to screw it up for them. The trouble is, the mortgage company probably won’t find out about bad loan officers until they have already messed up several deals. If you’re using a real estate agent, start by asking your agent for a referral.
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When you’re looking for a home, one of the first things an agent is going to ask is whether you have obtained financing for it. If you haven’t, you can bet they’ll wait until they see your preapproval letter before they spend too much time on you. If you ask, that agent will give you the names and phone numbers of a couple of loan officers in the area with whom they’ve worked in the past. It’s safe to assume that the real estate agent won’t be passing out the business cards of those who have screwed up deals.
Real estate agents have a short list, but sometimes people wonder if their agent gets a “cut” of the commission for referrals. Does a loan officer pay an agent for a referral once the deal closes? No. At least they’re not supposed to. Referral fees are not allowed. It’s the law. Under the Real Estate Settlement Procedures Act of 1986, or RESPA, any fees whatsoever during the course of a real estate transaction must be disclosed. Real estate agents use preferred loan officers knowing the deal will get closed on time and the loan officer will take good care of their clients. Real estate agents work on a commission and if the deal doesn’t close, they don’t get paid.
Loan officers get their business through a variety of sources. There are loan officers who specialize in making sales calls to financial planners and accountants; when a client of a financial planner asks for help with a mortgage, the client is referred to a particular loan officer. There are other loan officers who like to call on attorneys, others who solicit their friends and family, and yet others who pursue any sphere of influence they think might garner a few mortgage leads. You will also find loan officers advertising in newspapers, on television, on the radio, and on the Internet. There is no one single source from which loan officers get all their business.
12.2 HOW DO I KNOW IF THE LOAN OFFICERS MY REAL ESTATE AGENT SUGGESTS ARE ANY GOOD?
For starters, you need to know how long the agent has been in business. Agents who have only been in business for a year or two and have had only four or five closings really haven’t had enough experience to provide a good referral.
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If you’ve got one of the best agents in town, then you can bet they use the best loan officers in town as well. Real estate agents spend most of their time selling homes and very little time tracking down mortgage loans for customers, not to mention tracking down the status of someone’s loan application. Top agents use loan officers who will close deals with no problems. They rarely, if ever, call the loan officer to check on the status of a loan. The loan officer has most likely spent a considerable amount of time and effort to get on this agent’s short list, so as you can imagine, the loan officer will do anything to make sure you’re a happy camper.
I know of loan officers who make over $200,000 a year doing business with no more than three real estate agents. These individuals are experienced and very knowledgeable, and they have competitive pricing with a wide range of products. Top agents like to work with top loan officers. Top loan officers also know that if they mess up a deal, they’ll likely never get another lead from that agent. If loan officers who rely on just three sources of business do something to effectively damage one of their referral sources, then they will have effectively put a third of their income in jeopardy.
Additionally, top loan officers find it easier to get into the doors of other top real estate agents. “Oh, you do loans for Ms. (fill in blank here), don’t you? Sure, come on in.” A top loan officer who keeps doing things right can make a lot of money. If they make mistakes and routinely have problems with mortgage loans, they’ll typically be relegated to doing only two or three loans per month. Not a bad income, mind you, but nothing like what they could be making. If your real estate agent is a heavy hitter in town and you get a business card from a local loan officer, keep that card as one of your mortgage loan prospects.
Another way to find a good loan officer is to see how quickly they return your initial telephone calls or emails. If you call them and they don’t get back to you for a couple of days, you’ve got to wonder how they’ll respond if you’re an actual client of theirs.
12.3 WHAT IF MY AGENT’S NOT A HEAVY HITTER?
There’s no reason to discount referral sources at first glance. Some new agents (even experienced ones) don’t provide any whatsoever for mortgage loans. Some do, but give out more than one business card. If you get two or three mortgage referrals from your agent, it might not be because she works with three loan officers all of the time. The agent might be doing it for liability purposes. What liability? Not financial liability, but to avoid referring just one loan officer, to give you a choice. If your loan turns sour and you’ve been given three referrals, your agent can say, “Hey, I gave you three. You just picked the wrong one.” If your agent gives you more than one referral source, ask which one they’ve used the most. They probably have a favorite lender they prefer to work with, even though they throw in two other business cards anyway.
12.4 DO THE BEST LOAN OFFICERS WORK WITH THE BIGGEST LENDERS?
Some of the best loan officers don’t work for the megabanks, but instead opt to work for a smaller mortgage banking firm or a mortgage broker. A super-talented loan officer with superior customer service skills can sometimes make more money with a smaller operation. Loan officers who work with national banks typically have the business brought to them simply by taking loan applications from bank customers. Loan officers who go out and bring new business to a mortgage operation get paid more than the loan officer sitting in a bank lobby.
12.5 WHAT QUESTIONS SHOULD I ASK A POTENTIAL LOAN OFFICER?
You want to ask questions that accomplish two things: determine their experience and let them know that you’re a savvy borrower who knows all the tricks. You don’t need to go over a list of a hundred questions or have them fill out a questionnaire. Just spend a couple of minutes and ask them a few things.
For example:
What is your rate today for a 30-year fixed conventional mortgage? The answer should be quick, precise, and comfortable. Loan officers shouldn’t have reluctance quoting an interest rate. You don’t want to listen to any hemming and hawing. You want them to get to the point.
What are the lender closing costs on this loan? If you’re talking to a mortgage banker, they’ll have this number memorized. Usually it’s their company that sets the fees, not the loan officer. If you’re talking to a mortgage broker, make sure the fees they’re quoting include those from the wholesale lender as well as from the mortgage broker. When using a broker there will sometimes be two sets of fees: broker and lender fees. If you just ask for lender fees and don’t specifically ask for broker fees, they might not quote them to you because, frankly, you didn’t ask. If you’re not sure whether the lender is a broker or a banker, you need to ask.
What is the APR for this loan? This question is the setup from the first two questions. By knowing the interest rate, loan amount, and lender closing costs, the annual percentage rate, or APR, can be calculated. Most veteran loan officers, and even the good, not-so-veteran loan officers, have been asked this question so many times their heads spin; it should literally fall off the tongue. If you sense some reluctance from the loan officer, or they tell you that the APR is meaningless, this ought to send up a red flag. You need to work with a loan officer who not only can explain APR properly, but can explain when and why that’s an important number.
What is the par price for this loan? The term par means a rate quote with no discount points charged to the borrower to obtain the advertised rate. The term is hidden deep in lending lingo, and if you use the word when interviewing your loan officers, it immediately tells them that you’ve not just fallen from the turnip truck. For some strange reason you know some obscure lending jargon, so they better not mess with you.
How long have you been in the business? This seems like a fair question, one that should be asked of almost anyone in a profession. But in the mortgage business it takes on an additional meaning. Let’s say you set up a doctor’s appointment to see about that nagging cough. You sign in, take your seat, and suddenly you see some kid about 18 years old walking in with your medical chart. Are you going to question this kid’s experience? Of course you are. But in reality, physicians spend most of their adult life just getting through medical school, so you won’t see any 18-year-olds walking around with a stethoscope. There are requirements for being a doctor.
When interest rates drop and homeowners are refinancing their mortgages, then suddenly there’s a surge of new loan officers in the industry. When rates go back up and business slows, those loan officers get out of the business entirely and go back to being accountants or whatever. You want a loan officer who’s good enough at his business to make money when rates are high as well as when they’re low. Any loan officer can close a loan during a refinance boom, but the experienced loan officers know how to make money during all business cycles. If your loan officer hasn’t been in the business for very long, say, only a year or two, I’d rank him a little lower than someone with more experience.
Which lenders do you use? If you ask this question of mortgage brokers, you’ll get one of two responses: one straightforward and one vague. The straightforward answer is, “I typically use XYZ Bank, ABC Bank, and HIJ Bank, depending on the loan.” The vague answer is, “I really won’t know until I review all of our lenders. You see, we’re signed up with over 100 national lenders and I’d like to find you the best deal possible.”
While that second answer sounds terrific, it’s not what you want to hear. Your loan officer should be able to tell you who they’re doing business with. Maybe there will be some names you won’t recognize, but that shouldn’t necessarily cause you any concern. There are lenders who do nothing else besides wholesale lending. But if your loan officer won’t tell you who they’re working with, they’re not being straight with you. Okay, I’ll admit that a loan officer may not know exactly where they’ll send your loan, but they should have a fairly good idea. If they fail to answer your question, you might want to lower their ranking.
How much money will you make on my loan? Ouch. This issue of how much a broker will make off you has been around for quite some time, and it’s still not fully resolved. But ask your loan officer how much the company will make on your deal. I know that sounds weird, but your loan officer will ask you the very same question, right? Mortgage brokers are required to disclose how much they’re going to make on your mortgage loan and will provide you with a good-faith estimate, disclosing who charges what. Most will tell you right away that “we charge an origination fee and a processing fee,” for instance, and they will disclose other third-party loan costs as well.
12.6 HOW DO LOAN OFFICERS GET TRAINED?
Most loan officers will tell you that they never intended to get into the business, that they just ended up there somehow. There are a few colleges that offer degrees in mortgage banking, but not many. Sure, there are degrees in finance or accounting, but not in mortgage banking. At least they are not as widely available as other business degrees. Loan officers get trained by experience, by their company, and through courses, as in many other lines of work.
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In general, there are two types of loan officers. One typically has a financial background or is good with numbers, and that person gravitates to home lending. The other is someone who is good in sales or marketing and learns the mortgage business from that angle. There’s some good money to be made in the mortgage business. If you find a loan officer who’s been in the business for more than five years, it’s likely that they’re making $100,000 or more a year.
That kind of income potential attracts lots of folks, but it takes a particular type of person to be a good loan officer. First, it takes attention to detail. Loan applications can’t be taken haphazardly. There are too many things that can go wrong. Second, and perhaps most important, it takes an individual who can find the business in the first place. If the loan officer doesn’t develop a client base, then all the attention to detail doesn’t matter.
Many loan officers start in the real estate business, while others start in the financial services industry. Still others come from a solid sales or marketing background, which they can use to help them establish a client base. There is no bona fide career path; usually it just happens.
12.7 ARE THERE REQUIREMENTS FOR BEING A LOAN OFFICER?
Yes, there are. Following the financial crisis in 2008, Congress passed the Secure and Fair Enforcement for Mortgage Licensing Act, or SAFE.
As of August 1, 2009, a mortgage loan officer employed by a federally insured bank or credit union must be federally registered and all other mortgage loan officers, including mortgage bankers and mortgage brokers, must also be state licensed. Each state has its own licensing system but must comply with SAFE standards.
The law requires loan officers to go through and successfully pass a criminal history and credit background check, take a 20-hour pre-license education class, and pass the exam as well as complete eight hours of approved continuing education each year.
Residential mortgage loan officers must register with the National Mortgage Licensing System and Registry, or NMLS, and be assigned an identification number.
12.8 HOW DO LOAN OFFICERS GET PAID?
Some very handsomely, some not. It depends on whom they work for. If they work for a national bank, they typically get paid a salary. For a mortgage broker or banker, they, too, get a base salary and then a certain amount of basis points based upon loan volume each month.
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The national prominence of a mortgage lender helps bring in the business on its own, so the loan officer spends less time developing new business. In exchange for the lender doing most of the prospecting and coming up with the mortgage applicants, the pay structure is typically reduced.
Loan officer compensation is fairly standard with a few tweaks perhaps between different mortgage operations. A common compensation structure is a base salary plus an additional bonus based upon loan volume each month. For example, a loan officer gets a standard salary each month and then gets a certain amount of basis points based upon volume. A basis point is 1/100th of a percent. A loan officer might have a base salary of, say, $30,000 plus 90 basis points of the total loan volume for that month.
Say that a loan officer closes $2 million in loans. Ninety basis points of $2 million is $18,000. Some mortgage companies offer “tiered” pricing where the amount of basis points increases as loan volume increases. On the other hand, there might be a month or even two throughout the year when a loan officer has no closings for a month and only gets the base salary. The mortgage company still pays the loan office a base salary regardless of any production. However, if there are too many months where production is extremely low or nonexistent, the loan officer will likely soon be out of a job because the mortgage company cannot afford the pay with no production.
Good loan officers can stay in business for a long time if they so choose. Bad ones can’t, because they are unable to bring in the deals fast enough or are too inept to close the ones they do get. After a few months of no income, it’s quite possible the loan officer will choose a different career path, don’t you think?
12.9 DO ALL LOAN OFFICERS CHARGE 1 PERCENT ON EVERY LOAN?
That depends entirely on company policy. What loan officers cannot do, however, is charge an interest rate for one client and then another rate for another borrower. Under the exact same scenario, a loan officer is prohibited from charging different rates.
Say there are two borrowers, both with a 740 FICO with a 20 percent down payment and borrowing $400,000 and they both want to lock their rate on the same day. The loan officer must charge each customer the very same rate and term.
Before the introduction of Dodd-Frank (see Chapter 7 for more information), loan officers could be paid on a straight commission with no base salary. Mortgage loan officers could steer borrowers to higher-rate loans in order to get more commission. Or, loan officers might accept a rate lock from a customer but don’t officially lock in the loan at the time of the request and internally “float” the loan to see if rates get any better and then lock in the customer’s requested rate. Loan officers can no longer be compensated based upon the rate and loan program selected.
12.10 MY LOAN OFFICER ISN’T ANY GOOD. CAN I CHANGE LOAN OFFICERS?
Sure you can. Just because you made a decision to work with one loan officer doesn’t mean you’re required to stay with him. Especially if this individual is not doing a very good job for you or, worse yet, is trying to take advantage of you.
When you cancel a loan application, you’ll typically be asked to send in a written cancellation notice saying that you want to cancel your loan and transfer it to another mortgage company. This written notice might not be a legal requirement, and in fact, you don’t have to do anything at all other than apply somewhere else. You can do that without your current loan officer knowing about your doing so. The written cancellation will be required, though, should you want some of your documents that your old loan officer has that you want to send to the new loan officer. The appraisal, for instance, will have to have the new company’s name on it.
12.11 WHERE DO I COMPLAIN ABOUT MY LOAN OFFICER?
Each state regulates and licenses its own loan officers, so there is no national database of complaints. Instead, you need to find out who regulates mortgage loan officers in your state and make the complaint with them. Some states have different regulatory agencies depending on whether the loan officer is licensed as a mortgage broker or mortgage banker.
You can file your complaint at the state regulatory agency and also file a complaint with the Better Business Bureau. Too often, when people get shoddy service or they feel taken advantage of, they don’t register their feelings with the proper agencies. If you have a legitimate complaint about a loan officer, then by all means make your case with the regulatory agency that watches over him. You could be doing someone a great favor by helping to weed out ineffective and/or potentially corrupt loan officers.