Your insight would be most helpful.

Let's say my bank funds all loans from its own resources and not being table-funded by a third-party, both portfolio loans and loans from the secondary market division; it also compensates its loan offers/originators by salary only (not based at all on the loans originated or terms). As a result, the bank is not a "loan originator" under the rules.

Would this mean that, technically, the bank and its loan officers are in no danger of violating the compensation rules even if the Bank itself (not the salaried loan originator) receives compensation from a secondary market investor/creditor after the loan is originated (even if its called a YSP, SRP, or whatever).

Also, is their a danger under the steering rules if the bank, again funding its loans and therefore not a "loan originator" as well as compensating its originators by salary only, originates a loan that is not the least beneficial transaction available to the applicant in terms of rates or fees as the loan didn't effect the loan origiantor's compensation (not withstanding general fair lending considerations)?

I'm asking this in anticipation of management attempting to work with the rules as to abate risk and procedural impact, particularly as it contemplates its risk-based pricing strategies.

Bump...

Anyone? We are in the same position. Our Secondary Market Vendor is asking for our policies on compensation.

we are in the same position,we fund our own loans and our secondary market (former stage coach company) is asking us to provide loan originator compensation policies and procedures.

My understanding is that the steering provisions really only apply to brokers, not creditors.

Your bank would not be in danger of receiving compensation from the investor (SRP), but if you pay your originators an overage (what would be called a YSP for brokers), then that would be prohibited.

agree with CR.

Not getting where the steering rules apply to brokers and not creditors...can you point me in the correct direction. Thanks B

And how do we go about proving that we don't have to have policies and a steering notice?

Back to the steering question. I also don't see where that is limited to brokers. CR..are you implying that because in a bonafide secondary market transaction, the funding lender who then sells CAN earn a SRP and not be in violation? I believe that must be what you are referring too...but the MLO's that are employees of the creditor would still need to comply with Safe Harbor...yes?

If you are advancing funds and then just assigning to an investor, then you are the initial creditor and it is okay for you to receive SRP. If you are advancing on an investors funds (warehouse LOC, deposits at your bank), then you are an MLO subject to this rule and cannot receive an SRP that has been increased due to an overage.

Regarding the anti-steering, look at the commentary to 226.36(e)(1) of the regulations. "A loan originator who is an employee of the creditor on a transaction may not obtain compensation that is based on the transaction's terms or conditions pursuant to § 226.36(d)(1), and compliance with that provision by such a loan originator also satisfies the requirements of § 226.36(e)(1) for that transaction with the creditor."

Our investors have yet to ask for such a policy, but I guess its only a matter of time.

I think a policy for this could be simple. Just amend an exiting policy (RE Policy, Mtg Banking Policy, Lending Policy, Compensation Policy, etc.) by adding a statement such as: "For covered real estate transactions on loans sold to secondary market investors, [Bank] will not compensate our loan originators in a manner inconsistent with prohibitions on loan originator compensation under Federal Regulation. Specifically, [Bank] will not allow any compensation to be paid to any loan originator on any loan term besides a fixed percentage of a loan's principal balance."

Need clarification/comfirmation on how I am interpreting the definition of Loan Originator based on 226.36. If we (Bank) are not table funding but using our funds to fund mortgage loans then we would not be bound by the Loan Originator Compensation and Steering rules under Regulation Z 226. Am I understanding this correctly?

The bank wouldn't be..no.they could still sell on the secondary market and earn the SRP. Your MLO's, however, are a different story.

Your last bit of this says "...not allow any compensation to be paid to any loan originator on any loan term besides a fixed percentage of a loan's principal balance." Are you indicating that your loan officer's are paid based upon a percentage of the principal balances of loans they originate? We don't pay that way. Our Loan officers are just on salary.

If your LO's work for the bank and get paid a flat salary, then I would think that these new rules do not affect you. I worded the policy statement directly from the reg, which does allow for compensation on loan amount (% of origination charge) as the only allowable term to pay compensation based on.

So what about the steering notice? Do we still have to do that?

QM has perceptively brought us back to one of the original and fundamental questions in this thread. Is there a danger under the steering rules if the bank, funding its loans and therefore not a "loan originator" as well as compensating its originators by salary only, originates a loan that is not the least beneficial transaction available to the applicant in terms of rates or fees, as the loan didn't affect the loan originator’s compensation (not withstanding general fair lending considerations)?

At first read, one could conclude that there is little danger under those circumstances when parsing the definitions. Perhaps I’m conservative but imho, based on the excerpts from the reg below and the imprecision of the language on this point, it would seem that even under the circumstances above, a bank/creditor/employer would be prudent to require their loan originators to provide the steering notices for the safe harbor.


[The final rule under Sec. 226.36(e)(1) prohibits loan originators from directing or "steering'' a consumer to consummate a dwelling-secured loan based on the fact that the originator will receive greater compensation from the creditor in that transaction than in other transactions the originator offered or could have offered to the consumer, unless the consummated transaction is in the consumer's interest.

Comment 36(e)(1)-2 is also revised to provide additional clarification that where a loan originator directs a consumer to a transaction that will result in a greater amount of creditor-paid compensation for the loan originator, Sec. 226.36(e)(1) is not violated if the terms and conditions on that transaction are the same as other possible loan offers available through the originator, and for which the consumer likely qualifies.

As discussed above under the definition of a “loan originator,'' employees of a creditor are prohibited under Sec. 226.36(d)(1) from receiving compensation that is based on the terms or conditions of the loan. Thus, when originating loans for the employer-creditor, the originator may not steer the consumer to a particular loan offered by the employer to increase compensation.]