If the compensation structures you described are not related to the terms and conditions of the originators’ loans, they are permissible. In general, Regulation Z’s loan originator compensation rules prohibit certain incentive payments to loan originators as to closed-end consumer credit transactions secured by dwellings (“mortgage loans”). They also identify several permissible compensation methods. We are not aware of any rules that would restrict incentive compensation for other types of loans.

Under Regulation Z, loan originators may not receive compensation that is based on the terms or conditions of the mortgage loans they originate. 12 CFR 1026.36(d)(1)(i). “Compensation” includes “salaries, commissions, and any financial or similar incentive.” Comment 1, Official Staff Commentary, 12 CFR 1026.36(d)(1). The staff commentary provides examples of permissible bases for compensation, which include the loans’ long-term performance and the quality of loan files (that is, the accuracy and completeness of the loan documentation). Comment 3, Official Staff Commentary, 12 CFR 1026.36(d)(1). And, those examples are illustrative and not exhaustive — meaning that “a creditor may identify and use other permissible compensation methods.” Final Rule, Section-by-Section Analysis, 75 Fed. Reg. 58509, 58523 (September 24, 2010).

If loan cures are directly related to the quality of loan files, we do not see a problem with varying (that is, reducing) a loan originator’s compensation on that basis. Similarly, if loan repurchases are directly related to the long-term performance of the loans, we do not see a problem with varying a loan originator’s compensation on that basis. Overall, if your compensation structures are unrelated to loan terms and conditions, they are permissible under Regulation Z.

The full (but not exhaustive) list of the examples of permissible loan originator compensation:

1. The loan originator’s overall loan volume (i.e., total dollar amount of credit extended or total number of loans originated), delivered to the creditor.

1. The long-term performance of the originator’s loans.

1. An hourly rate of pay to compensate the originator for the actual number of hours worked.

1. Whether the consumer is an existing customer of the creditor or a new customer.

1. A payment that is fixed in advance for every loan the originator arranges for the creditor (e.g., $600 for every loan arranged for the creditor, or $1,000 for the first 1,000 loans arranged and $500 for each additional loan arranged).

1. The percentage of applications submitted by the loan originator to the creditor that result in consummated transactions.

1. The quality of the loan originator’s loan files (e.g., accuracy and completeness of the loan documentation) submitted to the creditor.

1. A legitimate business expense, such as fixed overhead costs.

1. Compensation that is based on the amount of credit extended, as permitted by §226.36(d)(1)(ii). See comment 36(d)(1)–9 discussing compensation based on the amount of credit extended.