Magazine article American Banker


Magazine article American Banker


Article excerpt

Byline: Kate Berry and Sara Lepro

Pay for (Loan) Performance

GMAC Inc. is getting tough on mortgage loan officer compensation.

Beginning this month, loan officers at the auto finance company's Residential Capital LLC unit will have some of their compensation tied to the performance of the mortgages they originate rather than being paid solely on the basis of volume, said a GMAC spokeswoman, Gina Proia.

"We believe this new structure will drive more efficiency in our loan origination business," Proia said Wednesday. She did not provide further details.

Many industry experts believe that perverse compensation policies were partly responsible for high default rates that contributed to the meltdown of the housing market. For years, loan officers were rewarded for originating high-cost loans with no penalty if the borrower ended up defaulting. The setup also provided an incentive to help borrowers falsify their incomes and obtain loans they could not afford.

David Lykken, the president of the Austin consulting firm Mortgage Banking Solutions, said GMAC may be "ahead of the curve" in tying compensation to performance.

"There needs to be a realigning of compensation because it's been out of balance for years," Lykken said. "Loan officers will be frustrated but this is a contracting market and it's time for the industry to retool."

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