In my last post, The Silent Cost of Incentive Comp Overpayments, I demonstrated how lenders can estimate the cost of overpayment errors by using the normal distribution model.  Today, I want to address one approach to help mitigate that risk. 

Before joining LBA Ware, I spent a decade in senior roles overseeing incentive compensation programs at some of the nation’s largest banks and independent mortgage lenders. Now, as LBA Ware’s director of client success, I’ve observed dozens of lenders’ incentive compensation processes and loan origination system (LOS) configurations. In this post, I’m going to share a simple strategy you can use for reducing loan originator (LO) compensation overpayments. 

A Cause of Overpayments

A frequent cause of commission overpayments I’ve seen over the years doesn’t originate in the payroll department. Rather, its origins are traceable back to the LOS.

Example LOS loan record where lead source defaults to Self Generated

Traditionally, LO commission structures payout self-sourced loans at a higher rate than company-generated or branch generated loans. The problem is when an LO creates a loan application, most LOS’ default the lead source field to self-generated. This default setting makes it all too easy for LOs to forget to change the lead source field when a loan is company-generated. Since the payroll team uses LOS data to calculate commissions, a loan file with an incorrect lead source will inevitably lead to errors in LO pay.

The LOS Fix to Overpayments

A simple way to reduce the risk of this type of overpayment is to default the LOS’ lead source attribution to the lowest-paying option (usually company-generated). That way, rather than indicating when to decrease compensation or “pay down,” LOs only need to take action when the loan is self-sourced therefore, “paid up.”

This approach puts incentive compensation in alignment with what your company wants: for LOs to have a vested interest in building clean loan files from the start — especially when other departments or systems receive the loan data.

Side by side comparison of loan commission paid for self generated loan vs branch referral loan

By taking this “paying up” versus “paying down” approach, you reduce the risk of overpayment errors, and LOs reap the psychological reward of positive reinforcement each time they bring in a self-sourced loan.

Just One Part of the Puzzle

While configuring your LOS for “paying up” rather than “paying down” can solve this particular overpayment issue, other overpayments stem from calculation errors that originate in the commission spreadsheet. Automating incentive calculation is the most direct way to prevent both these types of errors from occurring.

CompenSafe™ is the only incentive compensation platform designed to meet the unique needs of mortgage lenders. By seamlessly integrating with your LOS, CompenSafe automatically calculates and allocates all compensation as soon as loans close and fund.

Learn how CompenSafe can improve incentive compensation management and nip overpayments in the bud at your organization today.

Request a demo to power up your incentive compensation with CompenSafe by LBA Ware