Topic: Loan Originator Compensation
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Under the mortgage loan originator compensation (MLO) rules, are there any issues with compensating mortgage loan originators by salary only?
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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…
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Under the mortgage loan originator compensation (MLO) rules, can we award commissions for a HELOC based on the initial draw amount, without taking into account any subsequent draws?
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Yes, you may award commissions for a HELOC based on the initial draw amount. Regulation Z’s MLO compensation rules do not apply to HELOCs, as they apply only to closed-end consumer credit transactions secured by a dwelling. For resources related to our guidance, please see: Regulation Z, 12 CFR 1026.36(b) (The MLO compensation rules in…
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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…
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Does the Department of Labor’s Administrative Interpretation No. 2010-1 apply to consumer loan officers originating unsecured loans (i.e., not secured by a dwelling), or does it only apply to residential mortgage loan originators? Also, would it apply to a loan officer who originates some residential mortgage loans but also performs other duties as an officer of the bank?
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The Department of Labor (DOL) Interpretation is focused on both mortgage loan originators (MLOs) and “employees who perform the typical job duties of a mortgage loan officer.” While the DOL Interpretation does not specifically address non-residential loan officers, its guidance does provide a framework for determining the treatment of other bank employees as non-exempt employees…
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We cap the amount of compensation a loan originator can earn for a loan that is held in portfolio, but we do not apply the cap for loans that are sold. Does this violate the loan originator compensation rules? Our loan originators do not have lending authority and do not decide whether loans are held in portfolio or sold on the secondary market.
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We believe that this policy would violate the loan originator compensation rules, as your institution is varying loan originator compensation based on a proxy for a term of the mortgage loan transactions. Regulation Z prohibits loan originator compensation in connection with a consumer credit transaction secured by a dwelling that is based on a “term…
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Can we award the employee with the most customer referrals (for opening new deposit accounts) with a gift certificate worth over $600? Would we have to issue a tax form for the gift certificate? Can we also hold a drawing for the customers referred by the winning employee with a similar prize?
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We are not aware of any limitations on paying referral fees to employees for selling certain types of deposit accounts, but the drawing for bank customers would likely violate restrictions on bank participation in lotteries. Incentive Programs for Employee Referrals of Deposit Customers As stated above, we are not aware of any limitations on paying…
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We’d like to pay an incentive for clean compliance reviews to loan officers. Is that permitted under the loan originator compensation rules?
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Yes, we believe the loan originator compensation rules permit financial institutions to pay loan originator compensation that is based on the quality of a loan file. As stated in the staff commentary: “Permissible methods of compensation.—Compensation based on the following factors is not compensation based on a term of a transaction or a proxy for…
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Is it permissible to base loan originator compensation, at least partially, on the net return assets of a bank?
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The CFPB’s final loan originator compensation rules, when effective, will allow financial institutions to pay loan originators bonuses based on the bank’s net return on assets (or other measures of profitability), subject to two provisos: (1) bonuses would have to be limited to ten percent of each loan originator’s total compensation for the year, including…
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Can we require loan originators to pay for the cures they cause or alter their compensation based on whether a loan is repurchased? Would this be affected by the type of loan?
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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…
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What are the restrictions on giving incentive pay to our lenders?
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Regulation Z’s loan originator compensation rules prohibit certain incentive payments to loan originators as to closed-end consumer loans secured by dwellings, but it also identifies several permissible compensation methods. Otherwise, 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…