Once you have done your background work, the next goal is to solve any disparities.
This may mean:
- Altering compensation plans
- Equalizing pricing
- Setting origination boundaries
- Coming up with a business justification
Altering Compensation Plans:
I realize our industry has always recruited on agreeable, not equal comp schedules, depending upon the value that a person brings to your company. So if you are going to offer varying compensation schedules you are going to need to define why you have this policy.
Next, check how those varying comp programs may cause pricing disparity to similarly situated clients. If they do, then you should probably revisit those compensation programs. There is more than one way to compensate a loan, so that your company, the originator and the regulators are happy. The line that you cannot cross without lots of data and consultants is that of pricing disparity in similar areas with similarly situated clients.
Same company, different pricing=Pricing Disparity red flags. As an example, one of your originators receives “raw pricing” and one receives pricing with a company margin. This means one of your consumers may receive a better rate, for the same loan and same pricing adjustments.
If you have overlaps that may seem problematic, you may need to set origination areas if you choose to offer varying prices due to cost. It sounds crazy to do that, but if consumers receive different treatment in areas near one another you open your company to risk.
Your company has the freedom to choose any sort of pricing strategy and loan originator compensation strategy that they choose. However, Fair Lending implications waged against your company may be more costly than the policy itself.
So what would be a type of business justification?
It is important to note that the federal regulator will not accept your theory or belief. They want data!
Let’s assume your company has retail originators who call on real estate agents, call center employees that handle internet leads and other consumer direct leads, and builder loan originators who serve the national agreements your company has with national builders.
Each of those loan originator positions requires a differing skill set. Their leads come to them in a different format, and the degree of difficulty in getting those leads may mean less or more cost in time and money. This means you are tasked with having to quantify the cost per loan, for each type of origination channel, and justify your offerings of rate or price if those rates/price will differ.
Another example is different offices within an MSA and the cost to do business is higher in one area than another. Those “costs” need to be quantified to substantiate your business justification for higher rates or cost. For instance, Manhattan rents, tax, supplies, utilities, marketing, State fees, etc. may be more costly than Newark, NJ, even though they are in the same MSA. If you can quantify this with numbers then you are demonstrating your company has a data driven approach to pricing versus a reason you cannot back with data.