Status programs are essentially “clubs” set up by a lender to provide high volume mortgage brokers with rate discounts, faster underwriting, extra compensation, and other perks.
Lenders use status programs as incentives to drive efficiency and volume. To meet a lender’s status level, brokers generally have to close a certain amount of volume in 12 months.
Many lenders with status programs require brokers to hit that volume minimum by a specific date each year. For budgeting and other reasons, these deadlines often coincide with the lender’s fiscal year end.
Fixed deadlines (like November 1 or December 31) may suit the lender, but they’re not always great for the broker.
Having to meet a volume threshold by a fixed date is a disincentive to many brokers. The reason is simple. The less time that remains to hit a target, the less incentive a broker has to aim for that target (if they’re unsure of meeting it). That’s because there is only so much volume to go around. If a broker sends volume to one lender, it means he/she can’t send it somewhere else. The opportunity cost of sending deals to one lender and not hitting status is the potential loss of status at another lender. Therefore, brokers must be increasingly choosy about where they route applications.
Keep in mind, most brokers want status with as many good lenders as possible. This lets them offer better rates and service to their clients.
Suppose, however, that you’re a non-status broker and only four months remain until a particular lender’s volume deadline. Other things being equal, you will be less motivated to submit to that lender if you know you won’t hit the volume minimum by the deadline. Instead, you’ll route more deals to lenders where there’s still a chance you’ll achieve status.
Instead of fixed status deadlines, a potentially better solution would be a rolling 12-month window. In other words, the lender would gauge a broker’s status based on their trailing 12 months of production.
The benefit to brokers (and lenders) is that deals would always count towards the broker’s status for one year, regardless of which month the deal was sent.
From a client’s perspective, anything that incentivizes brokers towards objectivity is a good thing. This system would do that because it would shift more focus to the client’s needs and less focus on meeting a lender’s arbitrary volume minimums by a specific time limit.
Sidebar: Fixed status deadlines don’t impact all brokers, for two reasons:
Some brokers work on teams that do so much volume they already have status with all the big lenders.
Some brokers ignore lender status programs (long live the independent mortgage professional) and send deals to whichever lender has the best product for the client, albeit sometimes at a slightly higher non-status interest rate.