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#1993310 - 02/04/15 03:33 PM Paying referral fees to MLO who does only HELOCs
Many Hats Offline
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If an MLO only does HELOCs for an institution (because other MLOs within the organization are responsible for residential mortgage loans), is it okay to pay them a flat referral fee (i.e. $100 for mortgage loan referrals to another MLO who handles those types of loans)?

I do not see this being a problem under RESPA. Correct?

But, what are the implications under the TILA LO Comp Rules?

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Loan Originator Compensation Rule
#1993402 - 02/04/15 06:24 PM Re: Paying referral fees to MLO who does only HELOCs [Re: Many Hats]
Dani York, CRCM Offline
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Flat rate referral fees are allowed under the Comp Rule.
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#1993435 - 02/04/15 07:03 PM Re: Paying referral fees to MLO who does only HELOCs [Re: Many Hats]
Many Hats Offline
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I've seen this discussed in examples where it is a teller, for example. And, that seemed clear to me that it was permitted. However, since it is someone that happens to be an MLO, would that make it a problem?

Is there guidance or commentary to support that it would be okay in this example to compensate an MLO to refer a mortgage loan to another MLO?

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#1993450 - 02/04/15 07:29 PM Re: Paying referral fees to MLO who does only HELOCs [Re: Many Hats]
Dani York, CRCM Offline
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Anyone who receives compensation for referring a covered loan is an LO under the rule. Therefore, when you pay your teller a referral fee for referring a mortgage loan to your mortgage department, the teller becomes an LO, and you have effectively just paid an LO for a referral to another LO. This is completely allowable under 1026.36.

I do not recall there being anything that specifically states "Yes, it is ok to pay an LO (or MLO) a flat fee for a referral to another LO (or MLO)." While there is nothing saying it is ok, there is also nothing saying it is prohibitted. It is implied that this type of compensation is ok, provided that the consumer has not also paid the referring LO a fee for the referral. In your scenario, the consumer has not paid anything to anyone yet, so your bank would be fine paying a flat rate referral fee to your own employee for the referral between departments.

Our bank has a referral program for all bank employees (including our LOs/MLOs) where any employee who refers a mortgage loan to the secondary market department is paid a flat rate referral fee. Been through 2 FDIC compliance exams (Oct 2011 and Sept 2014) since the very first compensation rule came out in 2011. They went over our compensation plans both times with a fine tooth comb and neither time was our flat rate referral fee criticized in any way.
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#1999359 - 03/03/15 02:17 PM Re: Paying referral fees to MLO who does only HELOCs [Re: Dani York, CRCM]
Dani York, CRCM Offline
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Originally Posted By: Dani York, CRCM

Our bank has a referral program for all bank employees (including our LOs/MLOs) where any employee who refers a mortgage loan to the secondary market department is paid a flat rate referral fee. Been through 2 FDIC compliance exams (Oct 2011 and Sept 2014) since the very first compensation rule came out in 2011. They went over our compensation plans both times with a fine tooth comb and neither time was our flat rate referral fee criticized in any way.


Just wanted to update after a very upsetting phone call I had with the FDIC yesterday....

Evidently, the referral program above (that was ok'd twice by the FDIC) is now prohibited as of December 2014. The FDIC examiner I spoke with yesterday said it was a result of a Q&A transcript from the CFPB in December 2014. I cannot find this transcript anywhere on-line, nor do I recall there being a banker call by them in December about compensation. She did indicate that it could have been a regulator call with the CFPB.

I am waiting for them to tell me if that transcript is available to us bankers, but am not holding my breath. Just thought I would pass this information along. If I do ever get the transcript information, I will pass that along as well.
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#1999361 - 03/03/15 02:29 PM Re: Paying referral fees to MLO who does only HELOCs [Re: Many Hats]
Soccer Offline
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Dani:

I just went through confirming that all employees can not participate in a flat fee referral program for mortgages without becoming LO's. I had to reach out to our legal council and they sought guidance from the CFPB. Specifically section 1026.36(d)
If you want to PM me, I will give you my phone # and we can discuss further.
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#1999417 - 03/03/15 04:39 PM Re: Paying referral fees to MLO who does only HELOCs [Re: Many Hats]
Dani York, CRCM Offline
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Thanks Soccer. The issue for us was that we were paying a flat rate referral fee on only secondary market transactions. They are saying that paying a different incentive based on line of business is now considered a proxy.

We have always considered all employees LOs under Reg Z if they are able to receive a flat rate referral fee.
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I can't herd the cats anymore, so I just set up the electric fences and let them fry when they stray out of bounds.

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#1999463 - 03/03/15 05:44 PM Re: Paying referral fees to MLO who does only HELOCs [Re: Many Hats]
Diane Dean Offline
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I'm guessing this is their angle [Commentary to §1026.36(d)(1) #2.ii.A]:

"Assume a creditor pays a loan originator a higher commission for transactions to be held by the creditor in portfolio than for transactions sold by the creditor into the secondary market. The creditor holds in portfolio only extensions of credit that have a fixed interest rate and a five-year term with a final balloon payment. The creditor sells into the secondary market all other extensions of credit, which typically have a higher fixed interest rate and a 30-year term. Thus, whether an extension of credit is held in portfolio or sold into the secondary market for this creditor consistently varies with the interest rate and whether the credit has a five-year term or a 30-year term (which are terms of the transaction) over a significant number of transactions. Also, the loan originator has the ability to change the factor by, for example, advising the consumer to choose an extension of credit a five-year term. Therefore, under these circumstances, whether or not an extension of credit will be held in portfolio is a proxy for a term of a transaction."
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#1999473 - 03/03/15 05:58 PM Re: Paying referral fees to MLO who does only HELOCs [Re: Many Hats]
Dani York, CRCM Offline
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Yes, Diane. That is what they just emailed to me. I also had a friend send me the presentation slides from a banker call in October that discussed this and the answer on the slide was "It depends." The fact situation in our program is actually opposite of the commentary example. Our portfolio loans are HPML, and our officers do not advise on which product to choose. The customer is offered both the portfolio and the secondary and ultimately has the final decision. They even sign a form stating which product they choose.

I can somewhat see where they are coming from. I'm more torqued up by the fact that I clearly outlined our program in our CIDR for our exam in September. We talked about compensation ALOT, but this issue was not even brought up. They said everything looked good. So now all of a sudden this aspect of our program is an issue. Had I not made a phone call after another compliance officer friend of mine emailed me a general question about it, I would never have known it was now a problem.
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I can't herd the cats anymore, so I just set up the electric fences and let them fry when they stray out of bounds.

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#1999521 - 03/03/15 07:33 PM Re: Paying referral fees to MLO who does only HELOCs [Re: Many Hats]
Diane Dean Offline
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I understand your frustrations. We actually had to go to the commentary for the steering prohibition under §1026.36(e) to come to the conclusion that a creditor generally cannot pay its employees differently based on the product selected - it seems too likely that it would ultimately be considered payment based on the terms or a proxy for the terms....which is ultimately why the steering prohibition doesn't technically apply to those loans (because a creditor should not be offering different compensation in the first place):

"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 § 1026.36(d)(1), and compliance with that provision by such a loan originator also satisfies the requirements of § 1026.36(e)(1) for that transaction with the creditor."

Your experience gives some insight into how interpretations are changing/evolving (frustrating as it may be:).
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#2009477 - 04/22/15 03:31 PM Re: Paying referral fees to MLO who does only HELOCs [Re: Dani York, CRCM]
MBTCompliance Offline
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We were cited for something similar in our exam back in January 2015. Our exam team would not provide us with the transcript you referred to as it was "internal guidance."

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#2063019 - 02/08/16 05:02 PM Re: Paying referral fees to MLO who does only HELOCs [Re: Many Hats]
Indy Banker Offline
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I thought there was a "bank teller example" exemption under amended MLO Compensation rules, whereas a non-MLO could be compensated for a referral to a LO so long as the referral consisted of general credit terms only and the referal was not based on a review of a borrower's financial circumstances?

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#2063023 - 02/08/16 05:11 PM Re: Paying referral fees to MLO who does only HELOCs [Re: Many Hats]
Dani York, CRCM Offline
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I've taken the stance that a teller-initiated referral qualifies them as an LO, unless they are asking every single customer if they want to talk to a loan officer about a mortgage.

If a teller is "picking and choosing" who to solicit a referral from, they are making an assumption about the customer's financial situation. If I only ask the person with high large balances or the ones who drive BMWs, Range Rovers, or Corvettes, I have made an assumption that they may qualify for a loan. By using their account balances/history to make the assumption, I have also reviewed their financial circumstances in part.

To make it easier on myself and management, we classify any employee that initiates covered loan referrals as LOs under the compensation rule.
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I can't herd the cats anymore, so I just set up the electric fences and let them fry when they stray out of bounds.

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#2063071 - 02/08/16 06:37 PM Re: Paying referral fees to MLO who does only HELOCs [Re: Many Hats]
Indy Banker Offline
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So the Bureau's preamble published with the Fall, 2013 amendments to the Staff Commentary to 1026.36(a)-4.ii.B don't exclude tellers and other non-LO's from being considered LO's for merely referring - and being compensated for such - consumers to LO's employed by their same employee?

Second, the Bureau is clarifying that the exclusion is only available to
employees of a loan originator or creditor that provide the contact information of the loan
originator or creditor entity for which he or she works, or of a person who works for that same
entity. As proposed, the Bureau is removing the qualifying phrase “in response to the
consumer’s request.” The Bureau believes ambiguity regarding the meaning of “in response to a
consumer’s request” could have caused unnecessary compliance challenges. In such instances,
the Bureau does not believe tellers or other such staff should be considered loan originators for
merely providing loan originator or creditor contact information to the consumer (which would
consist of such an employee directing a consumer to a loan originator who works for the same
entity, or a creditor that is the same entity, as made explicit to conform the language in
comments 4.i and 4.ii.B). The Bureau also notes that classifying such individuals as loan
originators would subject them to the requirements applicable to loan originators with, in the
Bureau’s view, little appreciable benefit for consumers.

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#2063072 - 02/08/16 06:40 PM Re: Paying referral fees to MLO who does only HELOCs [Re: Many Hats]
Dani York, CRCM Offline
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for merely providing loan originator or creditor contact information to the consumer

I take this as providing info to a customer in a customer-initiated conversation. If a referral is bank-employee initiated (ie the teller strikes up the conversation) and it is on a "pick and choose" basis, I consider that covered by the rule IMO.
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#2063078 - 02/08/16 06:52 PM Re: Paying referral fees to MLO who does only HELOCs [Re: Many Hats]
Dani York, CRCM Offline
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https://www.bankersonline.com/forum/ubbthreads.php/topics/1804519/Referrals_from_Tellers

Post 1827073 in this thread explains my thoughts on the teller "relief".

Keep in mind, this is all my opinion, and I tend to be conservative. I would rather spend my time arguing with an examiner about whether or not I have a HMDA loan or how to complete and LE on a construction loan with no official guidance, than argue about my teller being allowed to get an unlimited bonus payment due to mortgage referrals when they can't even do their teller jobs correctly half the time.

You will have to make a determination on if your tellers' activities are covered by the rule, and defend them to regulators if questioned.
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#2230352 - 02/05/20 10:02 PM Re: Paying referral fees to MLO who does only HELOCs [Re: Many Hats]
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It looks like this threat has been dormant for a while, but I'm hoping someone might be able to help.

Our bank would like to compensate a certain group of "tellers" for mortgage referrals within the bank, but those in charge do not want these tellers to become "loan originators" under the LO Comp Rule. These referrals may arise from conversations with customers regarding their financial situation.

If these "referrals" were not made to a specific LO but rather to a branch manager, who would then assign the referral to a specific MLO, would these tellers be considered "loan originators" under the LO Comp Rule?

Thanks!

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#2230353 - 02/05/20 10:05 PM Re: Paying referral fees to MLO who does only HELOCs [Re: Many Hats]
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The scope of activities covered by the term loan originator includes:

1. Referring a consumer to any person who participates in the origination process as a loan originator. Referring is an activity included under each of the activities of offering, arranging, or assisting a consumer in obtaining or applying to obtain an extension of credit. Referring includes any oral or written action directed to a consumer that can affirmatively influence the consumer to select a particular loan originator or creditor to obtain an extension of credit when the consumer will pay for such credit.
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#2230429 - 02/06/20 08:35 PM Re: Paying referral fees to MLO who does only HELOCs [Re: Many Hats]
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This is the exact commentary that has me confused. The way I read Official Interpretation 36(a)-1 is that a "referral" requires three things: (1) an oral or written action, (2) directed towards a consumer, (3) that can affirmatively influence the paying customer.

By prohibiting our "tellers" from referring the customer to a specific MLO and instead requiring the "referral" to go to an intermediary (branch manager), wouldn't that make the branch manager the one that does the referring (not the teller) since the branch manager will make the oral or written action directed towards the consumer recommending a particular MLO?

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#2230431 - 02/06/20 09:15 PM Re: Paying referral fees to MLO who does only HELOCs [Re: Many Hats]
rlcarey Online
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So how does this work in the real world? Randy (teller) has a customer and says - hey, if you are interested in refinancing your house or purchasing a new one - go see Dan (Branch Manger) who then has to tell the customer - thanks for asking - go see Jim (MLO)? I don't see the great service in that.

If that makes the branch manager a loan originator, the teller is still referring them to a loan originator.

Then the question is - how does this get back to the teller for credit after all of this?

Why are they concerned about being designated a loan originator? It is not like they would have to register under NMLS.
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#2230471 - 02/07/20 03:44 PM Re: Paying referral fees to MLO who does only HELOCs [Re: rlcarey]
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That is pretty close. Randy (teller) would have a conversation with customer and if customer wanted mortgage information Randy would input the customer's contact information into our internal referral system directed to the branch manager. The branch manager would then provide the customer with the MLO contact information.

But you are right, this does not seem like a great customer experience.

I guess they are concerned about additional training, licencing, and compensation requirements/restrictions that would result from this. But maybe I need to research what actually would be required. Do you happen to know what we would have to do if these tellers were "loan originators" for the purposes of making referrals (but not originating mortgage loans)?

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#2230472 - 02/07/20 03:56 PM Re: Paying referral fees to MLO who does only HELOCs [Re: Many Hats]
rlcarey Online
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No licensing, training on fair lending issues if they are going to be talking about loans, and the compensation restrictions in 1026.36
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#2230478 - 02/07/20 04:14 PM Re: Paying referral fees to MLO who does only HELOCs [Re: Many Hats]
Dan Persfull Offline
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The following is from our EIC (FDIC Chicago Region) to a question I asked in August 2019.

Dan,

Sorry for the delay in response. Based on the information provided, a teller (even if paid a referral fee) would not be considered “loan originator” under 12 CFR 1026.36 so long as they do not deviate from the exception noted:

ii. Responding to consumer inquiries and providing general information. The definition of loan originator does not include persons who:
A. Provide general explanations, information, or descriptions in response to consumer queries, such as explaining credit terminology or lending policies or who confirm written offer terms already transmitted to the consumer;
B. As employees of a creditor or loan originator, provide loan originator or creditor contact information of the loan originator or creditor entity for which he or she works, or of a person who works for that the same entity to a consumer, provided that the person does not discuss particular credit terms that are or may be available from a creditor or loan originator to that consumer selected based on the consumer's financial characteristics and does not direct the consumer, based on his or her assessment of the consumer's financial characteristics, to a particular loan originator or particular creditor seeking to originate credit transactions to consumers with those financial characteristics;
C. Describe other product-related services (for example, persons who describe optional monthly payment methods via telephone or via automatic account withdrawals, the availability and features of online account access, the availability of 24-hour customer support, or free mobile applications to access account information); or
D. Explain or describe the steps that a consumer would need to take to obtain an offer of credit, including providing general guidance on qualifications or criteria that would need to be met that is not specific to that consumer's circumstances.

As you suggested, appropriate training would be recommended to ensure none of the tellers violate the exception, resulting in a potential violation of the Reg. Z provisions.

Let me know if you have any questions, concerns, or want to discuss.
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#2230483 - 02/07/20 04:30 PM Re: Paying referral fees to MLO who does only HELOCs [Re: Many Hats]
Dan Persfull Offline
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Sorry - I forgot to post the question to the above answer.

In our 2014 Compliance Exam performed by XXXX XXXXX we were informed we could not pay our tellers a fee for referring potential mortgage customers because under 1026.36 the compensation made them a loan originator and they would have to undergo the qualification requirements of 1026.36(f).

We would like to revisit this ruling.

From the OSI to 1026.36(a)-4:

4. Managers and administrative staff. For purposes of § 1026.36, managers, administrative and clerical staff, and similar individuals who are employed by (or contractor or agent of) a creditor or loan originator organization and take an application, offer, arrange, assist a consumer in obtaining or applying to obtain, negotiate, or otherwise obtain or make a particular extension of credit for another person are loan originators. The following examples describe activities that, in the absence of any other activities, do not render a manager, administrative or clerical staff member, or similar employee a loan originator:

It goes on to list the following activities: i) Application-related administrative and clerical tasks, ii) Responding to consumer inquiries and providing general information, iii) Loan Processing, iv) Underwriting, credit approval, and credit pricing and v) Producing manager.

It appears these activities do not make the person performing them a Loan Originator and it would appear since they do not meet the definition of a Loan Originator the compensation rules in 1026.36(a)-5 would not apply.

Furthermore I ran across the following:

https://files.consumerfinance.gov/f/201301_cfpb_final-rule_loan-originator-compensation.pdf

The Bureau is revising comment 36(a)-4 to clarify that the loan originator definition,
nevertheless, does not include persons who (whether or not for or in the expectation of
compensation or gain): (1) provide general explanations, information, or descriptions in response
to consumer queries, such as explaining terminology or lending policies; (2) as employees of a
creditor or loan originator, provide loan originator or creditor contact information in response to
the consumer’s request, provided that the employee does not discuss particular transaction terms
and does not refer the consumer, based on the employee’s assessment of the consumer’s
financial characteristics, to a particular loan originator or creditor seeking to originate particular
transactions to consumers with those financial characteristics; (3) describe product-related
services; or (4) explain or describe the steps that a consumer would need to take to obtain a credit
offer, including providing general clarification on qualifications or criteria that would need to be
met that is not specific to that consumer’s circumstances.

Based on the 1026.36 citations, and the clarification from the CFPB, it appears we would be in compliance if we resumed our teller referral program as long as we maintained the proper training to be sure the tellers are aware they are strictly forbidden from discussing any loan terms and/or discussing any qualification requirements for the mortgage loan process. It would be strictly a referral to the mortgage loan department (not a specific MLO) for secondary market and in-house (portfolio) mortgage loans. HELOC referrals would be referred to the Branch Manager of the branch the teller is working in at the time of the referral.

Because we discontinued our referral program due to a FDIC exam ruling based on the definition of a Loan Originator at the time we would request the FDIC reevaluate that ruling based on the updated citations provided before we choose to resume the Teller Referral Program.
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#2231016 - 02/13/20 08:09 PM Re: Paying referral fees to MLO who does only HELOCs [Re: Many Hats]
Beachbum Online
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Under the LO Comp Rule, can you hire a PT LO with no benefits and pay them commission only?

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