Still struggling with this and we only have one loan officer that this could impact. Currently, the CFPM website under the LO Compensation Main Reg. page says:

Loan Originator Compensation Requirements under the Truth in Lending Act (Regulation Z)....At this time, the Bureau is not prohibiting payments to and receipt of payments by loan originators when a consumer pays upfront points or fees in the mortgage transaction. Instead the Bureau will first study how points and fees function in the market and the impact of this and other mortgage-related rulemakings on consumers’ understanding of and choices with respect to points and fees. This final rule is designed primarily to protect consumers by reducing incentives for loan originators to steer consumers into loans with particular terms and by ensuring that loan originators are adequately qualified.

Here's what I'm just not getting. We have one officer that receives a small base salary. He does loans for both the bank (portfolio) and secondary market. His pay scale is the same regardless if the loan is bank portfolio or secondary market....here's the confusion. Under SM loans, the bank makes it's fee based off of a % of the loan amount. Our LO gets paid a % of that fee. I see no issues with that since the amount the bank makes is based off of the loan amount....however...

The portfolio loans work in the same fashion...the bank charges an origination fee, which is a % of the loan amount typically (1-2% depending on risk). Our LO gets paid a % of the origination fee (again just like SM loans).

In both cases, his % is of the origination fee collected, which is based on a % of the loan amount AND it's on a scale of 40% of fees for loans up to $80k, 45% of fees for loans up to $120k, and 50% of fees for loans over $120k.

Two questions....1.) based on the CFPB's statement on their website, are we going to have an issued with either way the LO is being compensated? AND...

2.) Since the amount our LO makes is a % of the origination fee AND that fee is based on the LOAN AMOUNT...would we appear to be in violation??

This is just driving me crazy...wheels spinning, any thoughts would be GREATLY appreciated.

The simple answer is: You are paying your loan officer based on a term of the loan (origination fee) and it can't be done. Not now or in the future.

And, just for kicks...It's easy to see another reason why this has come down to being taboo just based on how your bank is paying...it's really suggesting that he push for the larger loans because the fee to him is better.

Just sayin.

Thanks folks...this is a hypothetical situation anyway. I wanted to be clear on so as to tell those that be it cannot be done.

If the bank does not engage in any table funded loans and only ever originates loans in our name, which piece of the compensation rules apply to us? My head is absolutely spinning and even the CFPB Small Entity Compliance Guide is not helping me ensure I have everything covered. I'm afraid I'm missing something!

In the above example, wouldn't Qtip's bank be prohibited from receiving an origination fee based on loan amount?

Why would the bank be prohibited from charging an origination fee based on loan amount??

(ii) For purposes of this paragraph (d)(1) only, a "term of a transaction" is any right or obligation of the parties to a credit transaction. The amount of credit extended is not a term of a transaction or a proxy for a term of a transaction, provided that compensation received by or paid to a loan originator, directly or indirectly, is based on a fixed percentage of the amount of credit extended; however, such compensation may be subject to a minimum or maximum dollar amount

Thanks dblack. This was one of definitions that was confusing to me given the answer to Qtip's original question concerning the MLO employee. I thought if the LO employee was prohibited from receiving compensation based on loan amount, then a LO creditor would be prohibited for the same reasons. Now, it seems it is prohibited if the compensation is based on a tiered scale such as the one above because the compensation is not based on a fixed percentage. Is this correct?

I thought if the LO employee was prohibited from receiving compensation based on loan amount......

A LO is not prohibited from receiving compensation based on "loan amount". The original post said the LO was getting a percentage of the "origination fee" - not the loan amount. That is totally different.

Thanks for clarifying and for your patience, Randy.