Jim Russell writes in an article posted on “Media Center,” the web site of Tom Gyepes, Loan Doc Originator & Broker. He addresses a question that has also been on my mind. How is the mortgage industry going to change in the face of this, at the very least, public relations disaster?
He has several suggestions but I like this one best. Make the mortgage “originator” a long term actor in the deal than just a one time salesman.
Mortgage originators have long been compensated just for getting loan applicants to the closing table. After funding many mortgage originators simply lose interest in the borrower’s financial situation until they see another opportunity for origination income. The insurance industry dealt with this issue long ago. Today every insurance agent is tied to his/her client with a golden rope…
Most insurance companies do not fully compensate independent agents at the time of sale like the mortgage industry. Instead agents are partially compensated at the time of sale while the remainder of their income is paid out at a later date depending on the performance of the insurance policy they sold. This compensation practice is called “contingent commission” and it creates an incentive for every agent to act in the insurer’s best interests because if they don’t, they won’t be paid.
Let me share an example. There are two active groups of golfers at my club; mortgage originators and insurance agents. These two groups have very similar economic profiles, they are all high net worth income earners and they all constantly manage their book of business. There is one big difference in the way these two groups maintain their lifestyles though; the mortgage originators are highly dependent on landing new deals while the insurance agents are dependent on the long-term performace of the deals they’ve already written. This forces insurance agents to fully understand the risk profile of their clients before they close the deal and it also forces agents to maintain contact with their book of business.
If you are a business student, this is a great topic for a paper. But beyond this it is an idea that needs to be taught across our society, to think and act in the long term. Thinking only of the next quarter is an excellent way to convert a successful society into an apparently successful one, just as long as you believe the numbers.
There are a lot of areas in our economy where thinking in terms of the long haul would be in the best interest of all the players as well as our nation as a whole.
James Pilant
Pilant's Business Ethics Blog 
Great post. It is recognized by HR people that creating performance based compensation is not an easy task. The warning is, be careful about the behavior your reward.
For example, the Harvard Business Review tells a story about a manager who rewarded his logistics team for getting an order, “off the property.” Unfortunately, this led to moving the product from the warehouse to a lot across the street.
A short term fix is only good for shareholders. Reward the mortgage originators when the mortgagee pays up for more than a negotiable period of time.
I look forward to the day when business ethics is not an oxymoron.
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Thank you for the kind comment. I too am looking forward to the day when the bottom line is not the only consideration in business. James Pilant
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