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.
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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.
Status programs, aka minimum volume targets, go against the elementary core service mortgage brokers offer the industry. Namely, unbiased advice and product selection that best meets their client needs.
If a broker is required to steer clients towards one or two products, it makes them no different to the service Banks offer the industry. At least Banks are up front about it since it is clear from the beginning who and what products they represent.
Right on!
Hi Banker,
It’s sad to say but there are definitely conflicts of interest at play sometimes. I say “sometimes” because status does, in fact, allow certain brokers to provide lower rates and better service. The problem is, not all brokers are on the same playing field.
Some brokers generate massive volume and hit status at key lenders by default. We personally know dozens of brokers at this level and 9 in 10 are consummate unbiased professionals that are adamant about doing what’s best for their clients.
It’s the smaller independent brokers that are caught between a rock and a hard place. These folks are frequently forced to choose between the lender and the client. That is the reality, and our industry was never intended to operate like that.
For these reasons, I think we’ll see fewer small independents as time goes on, and a pronounced trend in brokers forming large teams. The Internet has brought great transparency to our industry. The powers that be will realize that and perhaps once again make client interests the basis upon which policies and programs are developed.
Cheers,
Rob
Well put. Lenders are shooting themselves in the foot by asking brokers to meet all these minimums and commitments. It is so short sighted. Not only do status programs fragment the whole industry but they take away the #1 benefit brokers offer customers, choice.
If lenders are worried about efficiency they should gear compensation to efficiency on a deal-by-deal basis. Lenders should never be allowed to offer one broker’s customers a better rate than another broker’s. That is totally discriminatory to the client. It is high time that regulators start investigating this practice.