The MLO rules do not prohibit compensating an MLO based only on a salary. However, even then, you may not base the salary on a term of a transaction or on a factor that is a proxy for a term of a transaction. For example, when determining an MLO’s salary, you may not take into account the fact that the individual’s transactions had a higher average interest rate spread than the year before.

For resources related to our guidance, please see:

• Regulation Z, 12 CFR 1026.36(a)(3) (Compensation includes “salaries, commissions, and any financial or similar incentive.”)

• Regulation Z, 12 CFR 1026.36(d)(1)(i) (“Except as provided in paragraph (d)(1)(iii) or (iv) of this section, in connection with a consumer credit transaction secured by a dwelling, no loan originator shall receive and no person shall pay to a loan originator, directly or indirectly, compensation in an amount that is based on a term of a transaction, the terms of multiple transactions by an individual loan originator, or the terms of multiple transactions by multiple individual loan originators.”)

• Regulation Z, Official Interpretations, 12 CFR 1026, Paragraph 36(d)(1), Comment 3(iv) (“Consequently, for example, where an individual loan originator makes loans that vary in their interest rate spread, the compensation payment may not take into account the average interest rate spread on the individual loan originator's transactions during the relevant calendar year.”)