Phil Grossfield's Blog

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My Schedule…and A Little Extra:  Would further comp plan changes be so bad?  My post from yesterday regarding Franklin American’s changes and the CFPB spurred quite a bit of commentary…here are a few selections:

• “Phil, I tend to find that every time something like this rolls out we do BETTER. Last year, we traded a “what can we get” model with one of consistency. I find that it is a lot easier to manage the business and earn more money when things are consistent. More often, it was us giving concessions to the consumer, not gauging. So long as they don’t roll out a low number making it difficult to profit with a moderate number of loans we’ll still have flexibility.  Secondly, if wholesale rolls in at 2.25 flat, do you know what retail margins would be? At least 0.5 point higher in my opinion.  Finally, for every one FAMC there are 50 lenders who see it differently.” Mike from Laguna Hills.
• “Phil, it would give the banks a huge edge if we couldn’t have borrower paid.  They could destroy the broker market if they wanted to get aggressive on pricing.  This ultimately would hurt the consumer by limiting competition for their business and ultimately result in higher rates and costs for the consumer, which of course is what has happened to a certain extent already.”  Todd from San Diego.
• “Hey Phil!  Here is what will happen if everyone does this.  The banks will end up stealing all the deals from us, if they want to,  and it will eliminate us being able to do no cost no fee loans.  We need to make no more than 1% to really do those and be competitive.  If this happens across the board then it is time to be a banker where they do not, at this time, have these rules in place.  They can sell any rate they want and not show SRP.  My buddy works at one of these small banks and he called me on a rate since he was being shopped.  I could do it making 1.000%.  His pricing was at a 2 point cost  to get it!  He talked to his manager and they made the exception just like in the old days.  This does not happen with us now as we just lower our margin like they did.  Of course if they make these changes we will not be able to perform.  It would be awesome if we could all be retail reps with each company.  I think that is what will happen soon and companies like yours will find a way to make it happen.”  Eric from San Diego.
• “For those people who work in Beverly Hills, La Jolla, Fairbanks, Rancho Santa Fe or anywhere along the Pacific Coast this is great. But not for those brokers that work inland and the loan amounts are way smaller. So once again you make the rich richer and the poor poorer. Then you invite redlining in again in a whole new way. This does not work….You would think Washington D.C. could grow a brain with all those people with all their prestigious degrees they all seem to be totally moronic.”  Bernie from Encinitas.

My Market Watch:  Rates are considerably worse today.  Per my research the main cause is due to news in Europe that the European Central Bank has committed to buying struggling country’s debts.  But that in itself shouldn’t be enough to move the markets so drastically.  So what do I think you ask?  I think that negative-bond-news/positive-stock-news weighs more heavily than positive-bond-news/negative-stock-news.  That is, my opinion is news and reports motivating Capital Markets to worsen rates is more impactful than news motivating Capital Markets to improve rates.  Why you ask?  Because there is little room to go down and a lot of room to go up. As an analogy, when a football team is within the 5 yard line of the end-zone, and the defense gets a holding call, the penalty is half the distance to the goal line because there isn’t enough room to assess the entire 10 yard penalty.  But if the offense gets an illegal procedure call, the full 10 yard penalty is assessed because there is plenty of room.  Same thing here.  News/reports that induce  rates to worsen will be fully assessed whereas news/reports that induce rates to improve will only slightly be impactful.  I hope I’m making sense….  Disclaimer

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