April 1, a date that has been haunting the mortgage industry, has almost arrived.

Despite hopes for a last-minute stay of execution, April Fool’s Day will likely bring major changes to how loan originators are compensated. And as a major payment formula gets tossed out the window, banks and credit unions are breaking new ground trying to find another.

Industry insiders speculate that April 1 is just the start of compensation changes, as the industry tries to rebalance competitive pay with competitive consumer prices, all while watching what their competitors are up to. It also has larger implications, as some see it hastening the shrinkage of the mortgage industry.

For the immediate future, the challenge is how to keep loan originators properly incentivized while not violating the new regulations. Although the new rules are a substantial cultural shift for many companies, the old paradigm isn’t easy to shake off.

“The industry reaction tends to be along the lines of ‘How do we keep things as much the way they are as possible?’– so there’s an inherent tension and frustration with that,” said Sean Mahoney, a partner in the Boston office of law firm K&L Gates.

Wait & See

As of next month, companies cannot pay loan officers more for selling loans with certain features or interest rates, as is common now. Put simply, if the loan terms yield more money for the lender, the loan originator gets a bigger cut.

But consumer advocates said these compensation arrangements compelled loan originators to push consumers into more expensive loans during the housing boom.

The dissolution of this practice has sent companies off into new territory, but they have a variety of other options: Pay can still be based on a fixed percentage of the loan itself, Mahoney said, and it can also be tiered to reward loan officers for hitting certain aggregate targets. Some institutions will pay a salary plus some type of bonus – which is perhaps what regulators would prefer them to do, anyway.

“The funny thing is, everyone is waiting to see what everyone else will do,” Mahoney said.

But that’s just among those that have been paying attention – it’s also possible that some companies are unclear on exactly what will go down April 1. Elizabeth Phelan, chair of the Massachusetts Mortgage Bankers Association, said that as late as this month mortgage professionals attending a Federal Reserve webinar on the subject were clearly confused about what was going to happen.

Some may also be placing their bets that industry efforts to stall the implementation would be successful – an unwise strategy, she said. Still, Phelan said she believed most companies were well prepared.

John Battaglia, president of the Cambridge Mortgage Group, a subsidiary of South Weymouth-based South Shore Savings Bank, said news of the switch has been hard to miss.

“I think I’ve gone to five seminars, listened to four webinars and read probably 100 articles,” he said.

But all the advanced preparation still doesn’t guarantee there won’t be surprises down the road. Battaglia and others have pointed out that the new rules have potential negative consequences for low- and moderate-income borrowers. Subsidized loans, including those underwritten by the Federal Housing Administration, are more labor-intensive and complex to underwrite, Mahoney said. Companies formerly could pay more for their loan officers to make these loans, a practice forbidden under the new rules. Mahoney predicted that if the rules stay as they are, originators will gravitate more toward expensive private products as a result.

“It’s unfortunate, but that’s where we are,” he said.

Trial & Error

A certain amount of trial-and-error will be built into the shift, according to George DeMello, senior vice president for residential and consumer lending at the Bank of Canton.

Like some other community banks, his institution already pays its loan officers based on the size of the loan, which the new rules allow. DeMello predicted more mortgage companies will likely move into this type of pay arrangement – but they might find that it’s more complicated than it seems.

Companies can attract good talent by offering to pay a higher percentage of loan values. But to make money on the loan, they’ll also have to raise interest rates. Customers will then likely gravitate to lower rates elsewhere, leaving companies in a conundrum over price.

On a grander scale, the changes seem like another chip away at the mortgage industry as a whole, said Suzanne Moot, owner of Milton-based M&M Consulting. The total collection of regulations has heaped new challenges and costs on the industry for years, and is slowly making mortgages a “scale” business for those that can afford the compliance costs, as small shops close.

Meanwhile, the mortgage market itself is trending downward, Moot noted. The purchase market is at a staggeringly low rate. Many consumers, having refinanced at historically low interest rates in the past couple years, will have no reason to refinance again for years – undercutting the refi cycle that helps feed the industry.

“People are fighting over a smaller pie, and at greater expense to do it,” Moot said. “I would expect that a number of folks will conclude they don’t want to be in it anymore.”