Mortgage lenders have been preparing since last fall to implement new federal restrictions on incentives for loan officers. But experts say another legal headache regarding how these employees get paid remains a challenge: the overtime issue.
Last spring the U.S. Department of Labor revised the job classification of mortgage loan officers from salaried professionals to hourly wage workers—meaning they qualify for overtime. Though loan officers can still earn commissions, they must do so within certain guidelines.
The change upturned many mortgage office operations that have been built around flat salaries, bonuses and long, long hours. It has forced banks to either limit worker hours or find a creative way to keep them salaried—and thus, exempt from overtime—without running into legal trouble. (Some firms have been sued in recent years by loan officers claiming unpaid overtime).
"Sales strategies have been changed," says Rob Northway, vice president for McLagan, a Minneapolis consulting firm specializing in financial industry compensation. "You can no longer have sales staff that are eligible for overtime working all hours of the day and weekend."
While some large banks and originators simply restricted loan officers to a maximum of 40 hours weekly, other institutions are intent on reworking job duties so that employees can remain salaried. The federal guildelines allows exemptions for certain administrative roles, so a slew of regional and midsize banks have chosen to add supervisory or management duties to the job descriptions of their loan officers.
Stephen Greene, a managing member of employment law firm Helms & Greene, says other exemptions include "highly compensated" workers earning at least $100,000 annually or those that work primarily outside the office in a sales capacity. But meeting the high-salary threshold is a challenge in smaller markets.
Banks have inundated compensation specialists, looking to buy or outsource payroll systems that calculate pay for nonexempt loan officers. Figuring out a bonus or commission can be difficult when an employee has time-and-a-half wage earnings during the pay period.
Meanwhile, "there are a substantial number of banks that have not acted on the change yet," beyond seeking legal and consulting advice, says Greene.
Some may be waiting for revisions to the guidelines that could add additional exemptions, or for the Mortgage Bankers Association lawsuit that challenges the overtime mandate to head to court. (The suit was filed in January.) Neither offers any short-term promise of a reprieve, observers say.
Others had been waiting for the new restrictions on incentive compensation—mandated by the Dodd-Frank Act—to come out before making any overhauls, says Greene. (Those restrictions had been expected to take effect April 1, but were postponed by court order at press time.)
The longer a company waits to comply, the more susceptible it may be to legal action by disgruntled employees suing for back pay. A Minneapolis law firm specializing in overtime claims, Nichols Kastor, listed 23 active suits in March against banks or mortgage firms brought by loan officers and underwriters seeking back pay. The defendants include Fifth Third Bank, Associated Bank, Wells Fargo & Co., and the former Countrywide that is now part of Bank of America. Nichols Kastor claims to have reached settlements with 50 other banks and mortgage firms.
Beyond legal and compliance worries, banks have practical issues to confront. A mortgage loan officer's job is hard to restrict to a nine-to-five desk assignment, says Marian Exall, principal and co-founder of bank-hiring consulting firm Employment Law Compliance of Atlanta, "The trouble with the workplace now is the lines are blurred," she says. "Mortgage lenders have to be out there generating leads, going to chamber breakfasts and whatever."
Adds Greene: "They obviously don't view themselves as needing to punch a clock."
