IBA Compliance Connection

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Under the mortgage loan originator compensation (MLO) rules, are you aware of any issues with using a tiered system for commissions based on loan volume? For example, we might award a commission for originating 4–5 loans in a month and a higher commission for originating 6–8 loans in a month. Is that enough of a spread, or would the compensation be considered to be based on a single transaction because just one loan makes the difference between tiers?

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No, we are not aware of any issues relating to compensation based on the tiered system that you described. Regulation Z permits creditors to compensate loan originators based on the total number of transactions originated. Although a single loan can make the difference between different commission levels, the MLO rules are focused on the “terms of the transaction,” and prohibit compensation that is based on those terms. The MLO rules expressly state that the “terms of the transaction” do not include the number of loans originated.

For resources related to our guidance, please see:

  • Regulation Z, Official Interpretations, 12 CFR 1026, Paragraph 36(d)(1), Comment 2(i)(A) (“Compensation based on the following factors is not compensation based on a term of a transaction or a proxy for a term of a transaction: The loan originator’s overall dollar volume (i.e., total dollar amount of credit extended or total number of transactions originated), delivered to the creditor.”)