Mortgage Loan Originator Compensation - turnaround

We are considering paying our loan originators if they process the loans and are able to close the loan with a quick turnaround time between application and closing (i.e. 30 days instead of 45 days). Since loan time isn't technically a term of the loan, would this be an issue for originator compensation restrictions?

You have to pass two hurdles, compensation on a term of the loan and compensation on a proxy for the term of the loan.

Someone with more experience would have to weigh in but perhaps the time to close could be a proxy as certain loan types or terms may consistently close faster than others?

It seems that compensating this way could encourage cutting corners as well. Just my thoughts.

I agree, you are going to do nothing but encourage sloppy work and short cuts.

I do agree we would encourage short cuts, but it would be my job to make sure this doesn't happen.

Can someone explain "compensation on a proxy for the term of the loan"? We would only offer this incentive for our standard 15 or 30 year closed-end loan product.

In my opinion, that could cause LOs to steer clients away from other products. So even though the incentive is technically not based on a term of the loan, the turn time is the "proxy" that could cause steering towards specific loan products.

Anyone else see it that way?

JKS - yes - steering might be another problem as the loan officers steer clients to the types of loans that close the quickest.

So, other than it possibly being a bad idea in general, is there any regulatory prohibition from paying an MLO an incentive to close there loans in a shorter timeframe?

Senior management wants to clear up some loans in the pipeline before year end, so they want to offer LO's $100 per loan that can be closed by year end. Any violation of MLO rules? I didn't see anything specific that addressed this, but you can never be sure so I thought I'd ask here, thanks.

Again this could be considered compensation on a proxy for the term of the loan. Loan officers would have an incentive to steer customers into whichever product would close the quickest so they could get the bonus. I would say it could be problematic based on what you have described. I can't point you to a specific part of the regulation that says this is prohibited outside of the proxy analysis.