Referral fees if a home loan results

our loan people would like to pay any employee $100 referral fee if they refer someone to our home loan people and it results in a loan being made.

i don't see where the new MLO compensation rules would impact this. i don't think the referring of a customer combined with the fee received turns the ordinary employee into a MLO.

obviously any person receiving such a fee could not be a mlo.

does anyone see a problem with this?

If you read the preamble, you will see that the CFPB interprets "offers" very broadly to include referrals (employee initiated solicitation of business, see pg 75-77 of the preamble). They even list an example of a teller who solicits a referral as engaging in loan origination activities.

That being said, you can pay a 100.00 flat fee incentive as that is permissible under the rule.

PS--The teller example is on page 78.

Thanks Dani, that was very helpful. I really appreciate the page numbers.

So the referral fee would then have to be included in the points and fees since its compensation for that transaction?
And would that teller then have to be registered as an LO?
I think both may be true so to avoid that situation, we won't pay for a referral.
Do you agree?
Thanks!

So the referral fee would then have to be included in the points and fees since its compensation for that transaction? I'm not sure, as I haven't gotten that far yet.


And would that teller then have to be registered as an LO? No, see page 351. "The Bureau is adopting....to provide that a loan originator must be registered or licensed when required by State or Federal law, including the SAFE Act,..." If the teller does not meet the 2-prong test under the SAFE Act, then they do not have to be registered. The referral in anticipation of a referral fee or bonus, does, however, make them a loan originator under Reg Z and the restrictions on compensation will apply.

so I am reading this to say we can provide the $25 referral fee to an employee outside the mortgage division but if we pay the $25, we have to reflect the $25 in the points and fee test?

Does this $25 get reflected on the GFE and in the APR?

so I am reading this to say we can provide the $25 referral fee to an employee outside the mortgage division but if we pay the $25, we have to reflect the $25 in the points and fee test?
Yes.


Does this $25 get reflected on the GFE and in the APR? To my knowledge, not under the current rules. But it may be on the integrated RESPA/TIL document. We'll have to wait and see on that.

Thank you Dani.

The points and fee test is the same test that we use under HOEPA? Maybe?

I am a one man shop so I haven't gotten through all this junk yet.

The points and fee test is the same test that we use under HOEPA? Maybe? As far as I can tell, yes. The circular referencing in these rules is nauseating!


I am a one man shop so I haven't gotten through all this junk yet. Misery definitely loves company, as I'm trudging right along with you.

It seems now that all employees at the bank fall under the new definition of ‘loan originator’ since the bank does give referral money out. I would interpret the wearing of a logo shirt as an ‘advertisment’ since the business card example is out there. It seems ridiculous, but until something else is clairified that is what we have to go on. Is that what everyone else that pays referrals is thinking? My next question has to do with the background checks and credit reports. Our credit reports have the option of giving a ‘background check’, if we ordered new credit reports on everyone and got the extra background check do you think that will satisfy the ‘from a law enforcement agency or commercial service’? I also did not see where this is an annual requirement or any follow-up requirement. Did I miss something?

Yes



It's my understanding that the requirement is a one and done kind of thing. As far as if the background check option will be sufficient, it would depend on what the background check option from your credit report provider covers. The background check requirement in the rule covers felonies and crimes of breach of trust at a minimum.

thanks

Coming back to revisit this old topic, now that TRID is in place. I have been approached with a plan to pay tellers referral fees, and I'm trying to track down where we ended up with the TILA implications.

If I pay $100 flat fee for a referral from a teller that results in a consummated mortgage loan:

1) Do I include the $100 in points and fees test?
2) Do I list the $100 on the LE and CloD?

If memory serves, I don't believe TRID changed anything about this since the finance charge definition stuff was abandoned.

That being said, the referral fee should only be listed on the LE and CloD if it is a separate fee paid by the consumer. I'm going to take a guess and say that this is NOT the case for your bank. If the referral fee is simply an internal thing and is not passed on the consumer, it does not go on the disclosures.

For the points and fees test, it would only be included if the compensation does not meet one of the exclusions in 1026.32b1ii. I'd say you will fall under exception C (compensation is paid by the creditor to an employee of the creditor).

(ii) All compensation paid directly or indirectly by a consumer or creditor to a loan originator, as defined in § 1026.36(a)(1), that can be attributed to that transaction at the time the interest rate is set unless:

(A) That compensation is paid by a consumer to a mortgage broker, as defined in § 1026.36(a)(2), and already has been included in points and fees under paragraph (b)(1)(i) of this section;

(B) That compensation is paid by a mortgage broker, as defined in § 1026.36(a)(2), to a loan originator that is an employee of the mortgage broker;

(C) That compensation is paid by a creditor to a loan originator that is an employee of the creditor; or

(D) That compensation is paid by a retailer of manufactured homes to its employee.

Thank you, Dani! I remembered it was discussed in the proposals, but was having trouble finding it in discussions of the final rules, so your response makes me feel much better. It's so hard to find a negative!

Here is one huge caveat about paying referral fees if it would make the referring employee a "loan originator" under Reg. Z and that is you need to review your "year-end" bonus plans. If those year-end bonuses are based on bank profits that include profit from mortgage loan activity, you will need to make sure that year-end bonus does not exceed 10% of total compensation.

A lot of institutions are now finding out that the compensation program they thought was compliant, really is not compliant because everybody forgot about that year-end bonus.