Commissions Are Falling Alongside Refi Activity

Loan officer commission dropped 17% year-over-year (YOY) in Q3 2021, according to SimpleNexus’ Q3 mortgage loan compensation report.

The report cites declining loan volume as the main factor in commission declines, while a roughly 15% rise in loan officer staffing contributed to a ⅓ drop in individual processor incentive compensation. Per-loan commission rates have started falling as well, dropping 2.44% YOY from 102.88 to 100.37 basis points.

Declining refinance activity had the biggest impact. Monthly refi commission dropped 37%.

Refis have been falling steadily as rates tick up, resulting in the slowest weekly pace of refinancing since January 2020. Interest rates reached 3.14% last week. “We continue to expect weakening refinance activity as rates move higher and borrowers see less of a rate incentive,” noted MBA’s Joel Kan.

Lenders have begun to “dial down” per-loan commissions on refis by 7.17%. But there is a silver lining: While refis are falling back to pre-pandemic levels after the refinance boom of 2020, the market isn’t tanking overall.

“The heyday of ultra-low rates and enormous refinance volume is over, and compensation is starting to settle back to pre-pandemic levels,” said Lori Brewer, EVP and general manager at SimpleNexus.

“On the bright side, 2021 is still shaping up to be the second-highest production year in the last decade, with modest growth in the purchase market helping take the edge off declining refinance volumes.”

Purchase loan commissions also dropped by 1.58% YOY. And the pace of new home sales has picked up recently despite the fact that fall is usually a slow season for the industry.

Industry experts have noted minor decreases in home prices and other factors that would point to a cool-down, but the market remains hot. Home stock shortages have continued to drive prices up as potential buyers scramble to buy the few homes still available.

“Homes continue to sell quicker and quicker,” said Redfin Chief Economist Daryl Fairweather. “There are still plenty of homebuyers lying in wait who missed out during the Spring frenzy, and they are snatching up homes quickly. Now, those homes are selling for near-record prices. The housing market will likely stay hot until mortgage rates rise substantially.”