In addition to salary, management wants to start paying our mortgage underwriters a fee for each loan file that they underwrite (both secondary market and portfolio). The proposed fee is a flat amount that will be paid regardless of whether the loan originates or not. The only guidance that I have found is in HUD’s Handbook, which states that “the mortgagee must not compensate employees who perform underwriting or Quality Control (QC) activities on a commission basis.”
I came across an article that discussed a mortgage company that got into trouble with the DOJ for paying their FHA underwriters based on requirements to complete a minimum number each month. If the minimum was met, they received a bonus. The bonus was based on the total number of loans underwritten rather than the quality of the underwriting.
Management does not believe that the per file fee is considered commission because it is not tied to volume/quantity. I’m hesitant to agree with that because it still incentivizes underwriters to produce more without considering quality. I don’t feel like it’s a risk worth taking and feel like rewarding underwriters based on quality makes more sense.
Does anyone have experience with paying underwriters above and beyond a salary? Or any opinion on how to properly structure such compensation?
Interesting question. I appreciate your concerns regarding loan quality.
There are a couple compensation issues you did not address, but appear to be of little concern.
* Section 1026.36(d)(1) of Regulation Z prohibits compensation of a loan originator based on the terms of the transact5ion. Your proposed structure does not appear to breach that requirement.
* Section 1024.14(c) of Regulation X states that no person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a settlement service other than for services actually performed. Making a loan is a settlement service. However, in your case, the underwriter appears to be performing services.