Wells Fargo & Co. (WFC), the largest U.S. home lender, changed its compensation for some mortgage salespeople to include a reward for submitting complete loan applications to processors and underwriters within five days.
Pay for salespeople this year will include a 0.03 percentage point incentive to submit a loan file that meets a list of requirements attesting to its quality, according to a Jan. 18 presentation obtained by Bloomberg News. That means salespeople who refinance an existing $400,000 Wells Fargo mortgage can earn $120 on top of the $1,720 commission.
Home lenders are changing how they pay salespeople after the financial crisis showed some staff were paid on volume without regard to whether the loans were sound. Lenders are trying to speed processing and boost originations as competition rebounds. The Mortgage Bankers Association has forecast a 19 percent drop in 2013 production.
“Timing is a big issue for Wells Fargo because they, like a number of other big banks, took some big hits for having very extended loan-closing times,” said Guy Cecala, publisher of Inside Mortgage Finance, an industry publication based in Bethesda, Maryland. Last year the San Francisco-based bank took 60 days or more to complete a loan, compared with smaller lenders who could do it in three weeks, he said.
“As the refi boom subsides nobody, especially Wells, wants a reputation for not being able to close loans in a timely fashion.”
Bank of America Corp. told some customers last year to wait 90 days before starting an application, two people with knowledge of the policy said in February. The firm began a reservation system in February that asks those who call during busier times if they wish to be contacted again in 60 to 90 days, the people said.
To keep up with mounting applications, Wells Fargo added about 7,000 full-time employees who process, complete and underwrite mortgage loans from the second quarter of 2011 through last September, Michael Heid, president of Wells Fargo’s home-loan unit, said in a November presentation in Boston.
The change in compensation, which goes into effect March 1, is meant to “focus on complete quality applications turned into processing in a timely manner,” according to the Jan. 18 presentation. “This is the first step in a predictable and consistent experience for our customers and referral partners.”
Vickee Adams, a Wells Fargo spokeswoman, said in an e-mail that “the 2013 enhancement allows us to align compensation with our business objectives.” The bank has provided “quality” incentives to mortgage salespeople since 2011, she said.
Wells Fargo, run by Chief Executive Officer John Stumpf, 59, will make the 2013 bonus contingent on the loan file containing documents such as pay stubs, bank statements and forms required by the Internal Revenue Service, according to the presentation. The completeness of the loan file will be judged by loan processors, and salespeople who try to unduly influence the scoring may be fired, the presentation said.
“You have to balance speed with making sure it’s still done in a comprehensive and riskless way,” Cecala said. “One thinks of the lawyers fulfilling foreclosures on the servicing side who were paid based on speed and we end up with the robo- signing controversy. You want to make sure that doesn’t happen in the origination side.”
The five largest home lenders signed a $25 billion accord with the U.S. and state attorneys general last year after revelations that employees and law firms signed thousands of documents without verifying their accuracy in the name of speed.
Wells Fargo’s incentive compensation will also include a 0.03 percentage point bonus based on customer loyalty, according to the presentation. Together the 2013 bonus opportunities replace a 0.06 percentage point incentive in last year’s pay.
As it did in 2012, Wells Fargo will pay so-called home mortgage consultants a 2013 base pay of $12 an hour that is an advance against their commission, the presentation shows.
Salespeople are entitled to a base compensation rate of 0.43 percentage point of each loan. Those who get 13 or more loans funded or bring $1.9 million or more in production each month are entitled to 0.63 percentage point, the presentation shows. The maximum commission Wells Fargo pays is $10,000.
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