Originators - Good and Bad

The originator can be working for a banker, broker, credit union, commercial bank, etc. Any entity taking applications for a mortgage will need a person to work directly with the applicant. This individual’s job title is “Originator”.

The originator’s compensation depends on the entity he is working for. He could be on straight salary. This means it wouldn’t matter how many mortgages he writes, the size of the mortgages he writes or the profit margin on the mortgages that closed, he was still paid the same. An entity that doesn’t depend on mortgages as a major source of their business would probably have a member of their staff take on the role of an originator as one part of their job description. Under these circumstances, the originator is most likely on salary.

Most originators are paid based on some form of commission structure. The entity an originator works for sees the position as a sales position and as is typically done in sales, compensation is based on productivity. This is done to motivate the originator but it can have a negative side effect; in his drive to write more applications, the originator may not be giving his client the level of service that they deserve.

Making matters worse, there are some entities that give their originators a certain level of pricing flexibility. This allows the originator to increase his compensation from certain mortgages by simply charging more when he feels he can get away with it. This “up pricing” as it’s called, is not fair to the consumer and is done in such a way that the consumer doesn’t even know it is happening. There are nationally renowned lenders that utilize this form of compensation to their originators, making this a wide spread problem. Fortunately, up pricing is becoming less and less prevalent as it has gained the attention of both Federal and State regulators.

As long as the originator presents himself to the public as a source for a person to obtain a mortgage, and nothing else, there is no problem. When a customer goes to buy a car, he anticipates that the salesman is looking to maximize his profit on the sale. As long as the customer sees the originator as a salesman, the customer will deal with him with the same expectations as when buying a car. The problem arises when the originator presents himself as an "advisor" to the applicant but in reality is only looking to maximize his profit. Now the customer thinks he is dealing with an individual who is looking out for his best interests when, in fact, he is dealing with nothing more than a salesman.

Not all originators work as salesman. Many do conduct themselves as advisors to their clients. Those that do, strive to give a high level of professional service so their clients are better equipped to make informed decisions about their mortgage financing. These originators see themselves as professionals and the business is not just a job, but their career. Their greatest source of business is from satisfied clients recommending new clients.

The untrained, unethical originator’s contributed to the current mortgage market trouble by putting their own personal interests above those of their clients. Making matters worse, they were purposely misleading their clients into thinking that they were the client’s advocates.

The mortgage market grew at an unprecedented pace and the industry’s need for manpower grew accordingly. With such a large number of new employees entering the industry, training suffered. This problem was most evident at the originator level. As companies pushed for higher and higher levels of originations they increased their staff of originators without any thought given to training. Originators were giving out incorrect information and making promises they couldn’t keep to their customers. The contact person that the consumer was using to access the mortgage industry, in many instances, knew less about the business than the consumer.

One positive effect of this market correction is that these untrained originators are leaving the business as fast as they entered. Mortgage companies are now more concerned about the quality of originations and less about the quantity. A welcome approach that is totally different from the one that was used over the last several years.