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#1671756 - 03/01/12 04:48 PM MLO compensation
#12 Offline
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I've done a search, and read a lot of other material on this topic, and am still a little confused.

Currently, our MLOs are compensated between 'x' and 'z' basis points of their monthly volume with the amount determined by volume tiers. Our credit department now wants to begin offering a Jumbo mortgage loan product. They are proposing that for the Jumbo product the MLO would be paid 'y' basis points regardless of volume.

I have found that loan amount is not considered a term or condition as long as certain requirements are met, but can we have different payment structures (based on monthly volume tiers for loans under $417,000, and a flat fee for Jumbos)?

Any clarification would be appreciated.

Thank you!
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Lending Compliance
#1672117 - 03/01/12 11:48 PM Re: MLO compensation #12
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
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From the discussion of the final rule:

Under the final rule, the
amount of credit extended is deemed
not to be a transaction term or condition
for purposes of § 226.36(d)(1) provided
the compensation payments to loan
originators are based on a fixed
percentage of the amount of credit
extended; however, such compensation
may be subject to a minimum or
maximum dollar amount. The Board
believes that compensation based on the
amount of credit extended is less subject
to manipulation by the originator than
compensation based on terms such as
the interest rate or prepayment
penalties. For example, a consumer
purchasing a home would be unlikely to
accept an offer for a larger loan amount.

Furthermore, a loan originator’s ability
to steer consumers to larger loans is
limited by underwriting criteria such as
maximum loan-to-value (LTV) and debtto-
income (DTI) ratios. The Board notes
that transaction amount is commonly
used throughout the mortgage market to
determine the amounts paid to other
parties, such as real-estate brokers,
mortgage insurers, and various thirdparty
service providers. The Reform Act
also specifically permits compensation
to loan originators based on the amount
of credit extended.26 For all of the
reasons discussed, the Board believes
prohibiting originator compensation
based on the amount of credit extended
would be unduly restrictive and is
unnecessary to achieve the purposes of
the final rule.
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#1672118 - 03/01/12 11:59 PM Re: MLO compensation #12
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
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See if this helps - from the FRB:

A loan originator's compensation can neither be increased nor decreased based on the loan terms or conditions. When the creditor offers to extend a loan with specified terms and conditions (such as rate and points), the amount of the originator's compensation for that transaction is not subject to change, based on either an increase or a decrease in the consumer's loan cost or any other change in the loan terms. Thus, if a consumer's request for a lower interest rate is accepted by the creditor, the creditor is not be permitted to reduce the amount it pays to the loan originator based on the change in loan terms. Similarly, any reduction in origination points paid by the consumer must be a cost borne by the creditor.

Under the rule, the amount of credit extended is deemed not to be a transaction term or condition of the loan for purposes of the prohibition, provided the compensation payments to loan originators are based on a fixed percentage of the amount of credit extended. However, such compensation may be subject to a minimum or maximum dollar amount. The minimum or maximum amount may not vary with each credit transaction.

Creditors may use other compensation methods to provide adequate compensation for smaller loans, such as basing compensation on an hourly rate, or on the number of loans originated in a given time period.

Example: A creditor may not pay a loan originator 1 percent of the amount of credit extended for amounts greater than $300,000, and 2 percent of the amount of credit extended for amounts that fall between $200,000 and $300,000. However, a creditor could choose to pay a loan originator 1 percent of the amount of credit extended for each loan, but no less than $1,000 and no more than $5,000. In this case, the originator is guaranteed payment of a minimum amount for each loan, regardless of the amount of credit extended to the consumer. Using this example, the creditor would pay a loan originator $3,000 on a $300,000 loan (i.e., 1 percent of the amount of credit extended), $1,000 on a $50,000 loan, and $5,000 on a $900,000 loan.
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Kathleen O. Blanchard, CRCM "Kaybee"
HMDA/CRA Training/Consulting/Mapping
The HMDA Academy
www.kaybeescomplianceinsights.com

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#1672246 - 03/02/12 02:45 PM Re: MLO compensation #12
#12 Offline
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Joined: Jun 2005
Posts: 1,338
Thanks Kathleen. I have read all of that, I also have found in my Lending Triage materials where we can base compensation as a fixed percentage on overall loan volume, and that this can include different percentages based on various thresholds.

The structure the credit department wants us to use is the tiered version, but Jumbo loans would be separate from that, and use just a flat fee per loan for those regardless of volume.

I think on their own, each is an acceptable method to use, I'm just not sure if we can combine the two different methods. I'm leaning towards yes.

Thanks again Kathleen!!
Last edited by #12; 03/02/12 07:11 PM.
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#1672622 - 03/02/12 07:10 PM Re: MLO compensation #12
#12 Offline
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Joined: Jun 2005
Posts: 1,338
Bump, anyone else care to take a stab at this?
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#1672627 - 03/02/12 07:12 PM Re: MLO compensation #12
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
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Posts: 21,277
Well, its me again, but they give an example of paying differently on smaller loans, So in a sense you setting the upper tier and will pay differently on smaller loans!

What do you think?
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Kathleen O. Blanchard, CRCM "Kaybee"
HMDA/CRA Training/Consulting/Mapping
The HMDA Academy
www.kaybeescomplianceinsights.com

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#1672631 - 03/02/12 07:15 PM Re: MLO compensation #12
#12 Offline
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Joined: Jun 2005
Posts: 1,338
I'll take your help any day of the week Kathleen!!!

So say the tiered portion pays between 35 and 70 basis points depending on volume. The Jumbo loans would be paid 40 basis points regardless of volume.

So, not really a maximum or a minimum, it's just right there in the middle!

I'm still leaning towards this should be ok though.
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#1672633 - 03/02/12 07:16 PM Re: MLO compensation #12
Mrs. Rizzo Offline
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Curled up by the fire...
Originally Posted By: #12
I'll take your help any day of the week Kathleen!!!


::like::
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#1672698 - 03/02/12 08:06 PM Re: MLO compensation #12
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
Joined: Dec 2000
Posts: 21,277
Ha, ha.

Yes, you are right in the middle of the program, so it is not taking advantage of anyone. Sounds okay.
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Kathleen O. Blanchard, CRCM "Kaybee"
HMDA/CRA Training/Consulting/Mapping
The HMDA Academy
www.kaybeescomplianceinsights.com

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