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The Big Squeeze – Countrywide Limits Broker Compensation

by Morgan on March 31, 2008

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Countrywide issued a communication to its brokers today limiting compensation on all loans to Countrywide to 4 points, including yield spread premium (back points or YSP).  While 4 points may seem egregious to some, it is the first step at banks actively restricting total compensation to brokers above and beyond traditional federal and state guidelines.  

The following is an Important Message regarding Broker Compensation. 

Dear Valued Business Partner: 

Consistent with evolving industry standards within the wholesale lending environment, Countrywide®, America’s Wholesale Lender® will be modifying the current Broker Compensation Policy for all broker-originated loan transactions. Effective Thursday, April 3, 2008 at 8:00 p.m. (PT), the maximum allowable total broker compensation will be set at 4% - which includes Yield Spread Premium (YSP) plus any additional points and fees charged by the broker to the borrower.* 

Broker compensation limits do not include discount points paid to the lender to reduce the borrower’s interest rate, lender fees, broker credits to the borrower or pass-through fees paid to a third party for actual services rendered. 

Impact to Pipeline 

Loans currently in the pipeline must be in “Docs Out” status, as reported on CWBC, by Thursday, April 3, 2008 at 8:00 p.m. (PT) or will be subject to the new Broker Compensation Policy. In addition, pipeline protected loans under the old Broker Compensation Policy must fund no later than Wednesday, April 30, 2008. 

If you have questions regarding this new policy, please contact your Countrywide Account Executive. 

Thank you for your business. 

As a wise man once said, the beat goes on…

Last 3 posts by Morgan

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  • Ann, I agree. This is just the first of the tightenings that we're going to see. I expect that before it's all done, we're going to see it drop to 2 pts, and even lower than that for low downpayment, low income deals.
  • Tom,
    That's about right. I have pegged broker compensation at about $2500-3500 max, and that should STILL be profitable. Just requires 12-14 deals.

    I'd also peg FHA comp as 3-4% because the government wants to control everything.
  • Ann
    Not surprised..from a business stand point it makes sense..Why pay more when your competition isn't...no longer is it necessary to "offer more" to get the loan..I expect that number will go down even further as time goes by and the Board of Directors from the banks meet at their usual golf game...
  • Mr. B
    This is not a response to the competition. The rebate point is a motivational tool to get brokers to sell harder to the consumer a higher rate mortgage.
  • To mr b
    Wow you are un educated.
  • Sensible person
    So how much more could you earn without violating the high cost threshold. And this is a problem for whom? Who cares people charging these egregious fees are what put us here in the first place. Get the car salespeople out of our industry. There is no service, unless you are committment some form of fraud that would ever warrant a fee like that.
  • MEE
    I agree that charging more than that is unethical, but charging max fees had nothing to do with the mess we are in. I dont see anything wrong with only being allowed to charge 4%. on a good chunk of loans in my area you couldnt even charge 4% without hitting high cost anyways. What I find funny is that it says nothing about Countrywide retail. I am sure they are still allowed to charge max fees.
  • norcalbroker
    You know what's funny, is that the clients who get bottom barrel deals from me, tend to be the ones who complain the most, refuse to give me referals, etc. Like one of my last loans of 2007...5 days from appraisal to docs, SISA, NOO, 1 point, no YSP. I made $1,200/ property. And of course, my fees were "too high" and this client now verbally berated me yesterday evening for not immediately having his net sheet on hand last night to send to him before he went to his tax guy today. I wish I charged 4 points!!!
  • Chris, I think that once the entire mortgage industry is nationalized (which it will have to be once Fannie and Freddie go under), you're going to see compensation plans drop quite dramatically.

    If there's only one game in town, why pay more to the sales people?
  • JeffX
    This has been North Carolina law for a few years...I see the greater industry adopting North Carolina and Georgia state level regulations...
  • Jillayne Schlicke
    LIMITED to four points? What was the limit before?
  • Frank
    4 points seems pretty high. On a half million dollar mortgage ( not out of the ordinary in my area ) thats $20,000! I know brokers that were closing multiple deals a day during the boom - they must have been pulling in millions!
  • Whatever the state and/or federal cap maxed out at which varies state to
    state, but usually around 6%.
  • I guess I don't see the big deal is? After all, (in my opinion) four points is still too much to charge a borrower, unless you are talking about a very small loan. Most large retail mortgage bankers have been limiting their originators 2 points or less for quite some time. To me, that is similar to personal trainers complaining they cannot get a job with Golds Gym because corporate has mandated they will no longer hire personal trainers who weigh more than 400 pounds and have a bmi of >40.

    The only reason I can see getting that much is when the broker is paying the borrowers closing cost (yes I realize the small loan amount dilemna).
  • Tony,
    I agree with you, if you are a competitive broker in this field, you will never get away with this unless you embed fees. This is a practice I do not believe in.
  • I agree with Tony & Austin. 4 points is absurd. Our company averaged over
    the course of 3 years well under two points per loan. What I find
    interesting is that the banks (esp. Countrywide, trying to clean up their
    act for the BofA merger) are taking more aggressive actions than the
    states/federal regs which is a complete shift in approach to wholesale.
  • derrick wynn
    Countrywide charged it own customers in retail (full spectrum) a avg of 8pts per loan. They screwed ther own customers.
  • mikew
    This is just fine with me. It still allows us to make a very good income. There really is no need to charge a customer 4 points. Really only the scandrals charged their customers that much.

    All of these pricing policies while they appear to only effect wholesale certainly effect retail. Retail has to compete with us. So if we have to disclose in dollar terms how much we are making and we can only make so much than retail will have to compete with us.

    Brokers still have the advantage becuase of our ability to run a much leaner cost efficient organization. I love it!
  • JD
    Basically borrower's with low loan amounts will be hurt by having less available options as brokers will cut back on the lower loan amounts. It's the big banks' way of slowly but surely cutting out the competition in low loan amount markets. Here's a good question....why aren't they limited what they can make when they sell their pools if they limit the originator? The bank can be just as predatory as the originator. This ultimately means CW and other large banks who follow will jack rates higher in their retail divisions for low loan amount (sub150k) borrowers, following the same 4% rule, pearing to make less but when their secondary market trades come through it all goes in the banks pocket. Way to help house america CW.
  • Brent
    xxx
  • 4% is 400 points. $% is obscene, 4 points is innocuous.
  • Ole Mtg. Banker
    Damn....I owned and operated a Mortgage Company for 19 years. We were mortgage bankers - not brokers. We never averaged 4% per year "ever". I still managed to retired at 45....Now I know how all those high school drop-outs were driving around in their new Mercedes...Oh Well...
  • Ann
    Ole Mtg Banker..they are also the ones with the McMansions up for sale and the Mercedes sold to CarMax...

    It takes a true professional who has lived through the ups and downs of doing business to survive...
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