one of our loan officers was approached by another institution. There deal is that they can get around the MLO compensation issue.
Here is what they do:
Bank sets a rate. Each mortgage loan officer can choose to make their loans at that rate or if they want to make more commission they can add a fixed percent to the rate. The trick is once they say add a "plus 1%" they cannont deviate and must do all their loans at that plus 1% - so if the customer says the rate is to high, the mortgage originator can't lower the offered rate down to the banks set rate. If the loan officer finds they are not making any loans then they may adopt a lower rate - e.g. a plus 1% instead of a plus 2%.

I think this is not going to fly, but i may be wrong. anyone heard of this?

It will not fly and smacks of being full of fair lending issues. A creditor setting rates based on what a loan officer wants to be paid is going to receive a visit from the DOJ.

Where can I find these rules for mortgage originator compensation?

Here

thanks