No, we do not believe that bonuses based on a loan originator’s total loan volume are limited to 10% of the loan originator’s total compensation.

Regulation Z generally prohibits creditors from compensating a loan officer “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.” However, Regulation Z's official interpretations identify several permitted compensation methods, including use of “the loan originator’s overall dollar volume (i.e., total dollar amount of credit extended or total number of transactions originated).” This compensation method “is not compensation based on a term of a transaction or a proxy for a term of a transaction.” As a result, the bonus described in your question is permissible under Regulation Z.

Moreover, Regulation Z’s 10% cap on loan originator bonuses applies only to bonuses paid under a non-deferred profits-based compensation plan. Such bonuses are deemed to be based on the terms of mortgage transactions (because they are determined by a lender’s profits, including profits derived from its mortgage lending business), but they are permitted under an exception to the general prohibition, although subject to a 10% cap. Here, since your bank’s loan originator bonuses are not paid under a non-deferred profits-based compensation plan, and as stated above, the bonuses are not based on a term of a transaction, the 10% cap for non-deferred profits-based bonuses should not apply.

Also, note that the source of funds for these bonuses does not affect whether they are permissible. Since bonuses that are based on a loan originator’s overall loan volume are permissible (because they are not based on a term of a transaction), they can be drawn either from a bank’s overall profits or from its mortgage lending profits — provided that the bonuses are based purely on the loan originator’s loan volume and not calculated with reference to the bank’s profits.

For resources related to our guidance, please see:

• Regulation Z, 12 CFR 1026.36(d)(1) (“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 2(i) (“Permissible methods of compensation. 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: (A) 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. . . .”)

• Regulation Z, Official Interpretations, 12 CFR 1026, Paragraph 36(d)(1), Comment 9 (“A loan originator’s compensation may be based on the amount of credit extended, subject to certain conditions. Section 1026.36(d)(1) does not prohibit an arrangement under which a loan originator is paid compensation based on a percentage of the amount of credit extended, provided the percentage is fixed and does not vary with the amount of credit extended. . . .”)

• Regulation Z, 12 CFR 1026.36(d)(1)(iv) (The 10% limitation on loan originator bonuses applies to a “non-deferred profits-based compensation plan (i.e., any arrangement for the payment of non-deferred compensation that is determined with reference to the profits of the person from mortgage-related business) . . . .”)