LO Compensation

Question 1

What is the Loan Originator Compensation Rule?

Answer 1

A rule with the goal of eliminating steering and prohibits compensation based on loan terms, other than loan amount, and proxies for loan terms.

Question 2

What Regulation and Act granted the LO Compensation Rule?

Answer 2

Under TILA and authority granted in the Dodd-Frank Act, the CFPB issued a rule regarding loan originator compensation

Question 3

What is a Loan Originator?

Answer 3

An individual or entity that performs origination activities for compensation, such as taking an application, offering credit terms, negotiating credit terms on behalf of a consumer, obtaining an extension of credit for a consumer, or advertising that the person can perform such activities.

Question 4

What is a Loan Originator not?

Answer 4

• A person that only performs administrative or clerical tasks on behalf of a mortgage licensee
• An employee of a manufactured home retailer who does not take consumer creditor applications or offer negotiate or advise a consumer on credit terms
• A person that only performs real estate brokerage activities
• A seller-financer that provides financing for three or fewer properties in a 12-month period
• A loan servicer, or its employees, that offers or negotiates loan terms for the purpose of modifying, replacing, or subordinating the principal of an existing mortgage if the borrower is in or likely to be in default

Question 5

Under the LO rule the LO’s compensation may not be based upon what?

Answer 5

• Any loan terms or conditions of a loan
• The terms of multiple transactions by a single loan originator, or
• The terms of multiple transactions by multiple loan originators

Question 6

What happens if the LO is compensated by the borrower?

Answer 6

If compensated by the borrower, a loan originator may not receive compensation from any other person

Question 7

An LO may not do what to a consumer in regards to a loan and the consumer’s interest?

Answer 7

A loan originator may not “steer” a consumer to complete a transaction based on the fact that the originator will receive greater compensation from the creditor unless the coompleted transaction is in the consumer’s interest

Question 8

An LO may not do what in regards to transactions that may change?

Answer 8

A loan originator may not agree to a specific level of compensation with regards to a specific transaction and then lower that compensation if terms of the transaction change.

Question 9

In what scenario can an LO decrease compensation?

Answer 9

To cover an increase in the cost of settlement services which was reasonably unforeseen at the time the initial disclosures were made.

Question 10

How long must records be kept regarding compensation under the LO rule?

Answer 10

They must be retained for at least 3 years

Question 11

What must these records contain?

Answer 11

• The nature and amount of the compensation
• Who paid the compensation
• Who received the compensation, and
• When the payment and receipt of compensation occurred