Loan Officer Compensation Update: Purchase vs. Refinance vs. Home Equity

Hey some mortgage compliance not related to TRID!

With the implementation of the Loan Originator Compensation ("LO Comp Rule") in 2010, and subsequent revision by the CFPB in 2014, many lenders are still adjusting compensation plans now that the dust has started to settle.

Let's revisit one question in particular ...

The Question

Can I pay an originator a different amount for Refinances, Purchase, and Home Equity Loans? What about more for saleable, as opposed to portfolio, products?

I don't think the loan officer deserves as much in commission for Refinances and certainly not Home Equity Loans - but I also don't want to run afoul of the LO Comp Rule's limitations.

The Short Story

No.

(Short enough?)

The Long(er) Story

The LO Comp Rule blocks us from paying originators based on terms of a transaction (examples of terms include interest rate or property type). This essentially prohibits payment based on profitability.

The current thinking on this (which really has not changed) is that the following two distinctions remain unsafe:

1. Purchase vs. Refinance

2. 1st Mortgage vs. Home Equity

3. Portfolio vs. Secondary

So your compensation plan shouldn't distinguish between these classifications - if it does, you're arguably in violation of the LO Comp Rule. (By the way one of the top 3 things the CFPB said it will be focusing on in 2016 examinations.)

**This is not to say there aren't alternative solutions that are effective and compliant. For example, you might pay a higher commission rate for loans to borrowers classified as "new" to this lender, which is 100% safe per CFPB and also an effective way to encourage a loan officer to go out and develop new business instead of churning his own portfolio.**

In Other News:

• And we wonder why Flood insurance is so expensive - NJ residents fighting seawall that would protect coastal towns.

• Verifying what we've all been saying for (feels like a year?) - CFPB finally comes out and officially corrects the preamble to clarify that pre- paids are NOT subject to a tolerance (the preamble left out a very important word - "not"). So if you've had an investor hold up a deal because your pre-paid property taxes increased, well, here's all the ammunition you need to make your point!

• Have you heard of Kasasa? It's a company that offers a product that allows hundreds of community banks to pool together to compete with the big credit card providers. Interesting concept.

Trust and teammates is like oil and gears - everything works smoother when teammates trust each other. No need to double check someone else's work or hoard work for yourself if you trust others to get the job done. How do you build trust? Big promises and trust falls? I don't think so - more like avoiding overpromising & underperforming; more like doing what you say when you say you'll do it. Even if it goes unspoken, the little things don't go unnoticed.

"There are some people who live in a dream world, and there are some who face reality; and then there are those who turn one into the other."

- Douglas H. Everett

Thanks so much for reading our weekly newsletters. We're not always going to be perfect, but because we always do our best and try not to overpromise, we hope that we're always going to be trustworthy. Your calls and e-mails are very helpful - please keep contributing.

**These are our opinions. We're not authorized, or willing, to express those of others.**

#LOCompensation #TRID #CFPB