Paying LOs extra to reach low-to moderate income borrowers.
Getting some flack for lack of penetration to low-to-moderate income communities during a fair lending or CRA exam? Maybe one thing you could do is incentivize originators to reach these borrowers by paying them extra.
Stuck between a rock and a hard place?
Some lenders need to increase lending to low-to-moderate income borrowers but aren't sure what they are even allowed to do to accomplish that. For example, does providing an incentive to loan
officers violate the Loan Originator Compensation Rule or something else?
No.
It is perfectly safe to pay loan officers an incentive to reach low- to-moderate income borrowers. Whether that is a flat fee, perhaps a bonus at year-end, or even a higher commission rate.
There had been some concern about this, and that's why we're taking the opportunity to set the record straight. The CFPB has come out and confirmed this publicly. And if you're curious, here are the details:
The reason is that (a) income-level of the borrower is not a "term" itself and (b) neither is it a "proxy" for a term. As we know, for a factor to be a "proxy" it must consistently vary with a term and be something the loan officer could influence. Now, while income-level may actually correlate with a term or terms--perhaps interest rate-- this cannot be a proxy because the loan officer has no ability to influence the borrower's income level.
Final Note: Of course, you can't be "targeting" low-to-moderate income borrowers with loans that have unfair or discriminatory terms. But I know you wouldn't do that!
In other news:
With all this ice and snow (and roof and other damage) roofers and contractors will be busy this spring! That may also mean lenders prepared to offer competitive home improvement loans will be busy. How can lenders capitalize? Maybe a new loan product? Maybe just a boost in marketing? What about rolling out a MassSave HEAT loan? Interest paid up front, if it pays off early, you keep the money. Pretty good deal! (Not to mention you'll be dealing with a lot of local builders ... maybe they'll need a new business loan!) Need help setting this process up? Give us a call!
Everyone is buzzing about Fannie's attempt to automate the appraisal process--"Collateral Underwriter." Do we use it? Do we ignore it? I don't know, but I do know the most recent Lender Letter and FAQs are very helpful in understanding what this is all about. For what it's worth, our appraisal review team is finding it helpful to see the results and risk score.
Come on guys! - "[Mayor] Walsh also scolded adults he said were reportedly jumping from windows into snow piles for fun, which he called a "foolish thing to do." "You can kill yourself," Walsh said. "I'm asking people to stop the nonsense ... This isn't Loon Mountain. This is the city of Boston." .... Seriously, it's snowed so much here in Boston that even our friends in Watertown, NY (one of the snowiest places on earth) must be laughing at us
This week in BSA news--In another step away from "Operation Choke Point" (the FDIC discouraging borrowing to certain groups of people), the FDIC issued a new letter encouraging a "risk based approach" as to "individual" relationships with customers. A good analysis is available here if you might be affected.
Some say when people get into "work mode" we tend (too often) to leave curiosity at the door. We feel that "working" means we need to give answers, rather than ask questions. That this stifles innovation and "freezes" us into processes that could be improved if we bothered to ask how. Dr. Muhammad Yunus is one entrepreneur whose relentless curiosity ultimately made a huge difference.
Dr. Yunus is the father of micro-finance (no it's not Brian Williams), which is providing very small loans to people who have no other access to credit on reasonable terms. Dr. Yunus was a professor trying to provide an answer to why so many people were poor and starving in Bangladesh. He was unsuccessful in doing so while at the university, so he tried a new tactic. He went to live with the people, working on farms, helping with crops, asking questions .... One day, he met a woman who built bamboo furniture. Because she couldn't afford to buy the raw material, she had to rely on loans from predatory "middlemen." They lent her money to buy the bamboo but required her to sell them the furniture at such low prices that she only made 2 cents per day (and those were hard days).
He asked his student researchers, "how many people in this village currently rely on such middlemen?" The answer: 42. He asked, "how much do these people need to purchase their own raw materials and escape the clutches of these middlemen?" The answer: Only $27 for all 42 people!
Dr. Yunus made the first loan ($27) personally. He then formed Grameen Bank, which went on to do over $11 billion in micro- loans. Contrary to what many thought, the portfolio has an incredibly high repayment rate.
"A little consideration, a little thought for others, makes all the difference."
- A.A. Milne
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