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Presented by: Ronette Schlatter, CRCM Senior Compliance Coordinator Loan Originator Compensation 2014 IBA Human Resources Conference.

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Presentation on theme: "Presented by: Ronette Schlatter, CRCM Senior Compliance Coordinator Loan Originator Compensation 2014 IBA Human Resources Conference."— Presentation transcript:

1 Presented by: Ronette Schlatter, CRCM Senior Compliance Coordinator Loan Originator Compensation 2014 IBA Human Resources Conference

2 Dodd-Frank Act LO Rules Basic Provisions  Regulates LO compensation  Imposes LO qualification requirements  Requires LOs to include NMLS ID# on certain loan documents April 15, IBA HR Conference2

3 Who is an LO?  A person who, in expectation of “compensation” performs any of the following:  Take an application  Arranges a credit transaction  Assists a consumer in applying for credit  Offers or negotiates credit terms  Refers a consumer to a loan originator or creditor  Represents to the public that he/she can or will perform any loan origination services  May/may not be registered Safe Act MLO April 15, IBA HR Conference3 Note: broader definition than SAFE Act!

4 Referrals to an LO A person making a referral to an LO is not considered a LO, provided the person:  Responds to consumer’s inquiry for LO referral; or  Only provides contact information for a LO; and  Does not discuss particular credit terms; and  Does not direct the consumer to a particular LO based on an assessment of consumer’s financial position April 15, IBA HR Conference4

5 LO Activities do NOT include…  Providing general information in response to consumer inquiries  Loan-processing activities, e.g., assembling credit application packages & supporting docs  Verifying application info  Coordinating closings or communicating with consumers about dead- lines or documents needed to close  Underwriting activities, provided there is no communication with consumers re: credit terms April 15, IBA HR Conference5

6 Compensation includes…  Salaries  Commissions  Annual or periodic bonuses  Awards of merchandise, services, trips or similar prizes  An award of stock, stock options, or equity interests April 15, IBA HR Conference6

7 LO Compensation Prohibitions LOs are prohibited from:  Receiving compensation based on loan terms or proxy for loan terms  Receiving compensation from the both the consumer and another person  Steering a consumer to a particular loan because the LO will receive greater compensation April 15, IBA HR Conference7

8 Compensation based on Loan Terms “Loan terms” include:  Interest rate  APR  Collateral type (condo, detached home, manufactured home, etc.)  Existence of prepayment penalty  Origination fees and points April 15, IBA HR Conference8

9 Loan Term “Proxies” Two-Step Analysis  Factor consistently varies with transaction term and  LO has the ability to, directly or indirectly, add, drop or change factor during origination process Proxy Examples  Portfolio vs. Investor loan  Credit product (FHA, VA)  DTI, LTV, Credit Score  Profitability  Geography (census tract) April 15, IBA HR Conference9

10 Permissible Compensation Bases  Overall loan volume  Fixed percent based on loan amount  Long-term performance  Existing customer vs. new customers  Fixed amount determined in advance (including tiers)  Loan quality (accuracy & completeness)  Actual hours worked  Percent of approved apps actually closed April 15, IBA HR Conference10

11 Profits-Based Compensation  Generally constitutes “loan-term based” compensation and is prohibited, except for:  Payments to designated tax-advantage, defined contribution or defined benefit plans as long as contribution is not directly/indirectly based on terms of an individual LO’s transactions  401k plans, defined benefit plans, annuities, etc.  Payments via non-deferred profit-based compensation provided:  Payment does not exceed 10% of “total compensation” OR  LO originated 10 or fewer transactions in preceding 12 mos. April 15, IBA HR Conference11

12 Non-Deferred Profit-Based Compensation  Bonus pools  Profits pools  Bonus plans  Profit-sharing plans  Awards of merchandise, services, trips, or similar prizes April 15, IBA HR Conference12 Any non-deferred compensation arrangement where an individual LO may be paid variable, additional compensation based in whole or in part on the mortgage- related business profits of the paying person

13 Non-Deferred Profit-Based Compensation  A non-deferred profits-based compensation plan does not include the following bonus plans because they are not based on mortgage-related profits:  A retention bonus budgeted for in advance  A performance bonus paid out of a bonus pool set aside at the beginning of the company’s annual accounting period as part of the company’s operating budget  A plan that is determined with reference only to profits from a business other than mortgage-related business April 15, IBA HR Conference13

14 Non-Deferred Profit-Based Compensation 10% Total Compensation Limit  Use same timeframe for calculating 10% limit as when compensation was earned (not when paid)  “Total Compensation” includes:  Wages/tips actually paid during the relevant time period (Box 5 on W-2)  Cash value of awards of merchandise, trips, etc.  1099-Misc income paid  May include contributions to tax-advantage plans April 15, IBA HR Conference14

15 Increasing/Decreasing Compensation  Once compensation agreement is in place, compensation cannot be adjusted on selective basis (or per loan)  E.g., creditor makes less on loan than expected  LO does not follow creditor underwriting guidelines  Match competitor’s offer or avoid HPML coverage  Exception: May be decreased to cover unforeseen increase in actual costs on HUD vs. GFE estimates  Compensation agreements may be adjusted prospectively April 15, IBA HR Conference15

16 Other Compensation Considerations  Dual compensation is prohibited  LO may not receive compensation from both consumer and another person  Steering is prohibited  A LO may not steer consumer to a loan for greater compensation  Safe Harbor provision: Provide consumer w/ loan options:  Loan w/ lowest interest rate  Loan w/ lower interest rate & no risky features  Loan w/ lowest orgination points & fees and discount points April 15, IBA HR Conference16

17 LO Qualification Standards Banks must insure their LOs:  Are registered w/ NMLS;  Obtain criminal background check through NMLS (or law enforcement agency or commercial service);  Obtain credit report; and  Review any information related to administrative, civil or criminal findings from NMLS background check BEFORE acting in capacity of a LO. April 15, IBA HR Conference17

18 LO Qualification Standards Banks must also ensure LO has:  Within last 7 years not been convicted or plead no contest to a felony in a domestic or military court; or  Ever been convicted of or plead no contest to a felony involving an act of fraud, dishonesty, breach of trust or money laundering  Expunged convictions and pardons do not count April 15, IBA HR Conference18

19 LO Qualification Standards  Based on credit report, background checks, etc., bank must determine LO has demonstrated financial responsibility and good general character to warrant LO will act honestly, fairly & efficiently  Applicable to:  LOs hired on or after 1/10/14  Existing staff that move into LO position after 1/10/14  Not Applicable to:  LOs hired prior to 1/10/2014 if hired according to standard practices at the time of hire;  AND, Bank has no information indicating LO likely does not continue to meet standards  Applicable to:  LOs hired on or after 1/10/14  Existing staff that move into LO position after 1/10/14  Not Applicable to:  LOs hired prior to 1/10/2014 if hired according to standard practices at the time of hire;  AND, Bank has no information indicating LO likely does not continue to meet standards April 15, IBA HR Conference19

20 LO Qualification Standards Periodic training requirements  Based on job duties  As deemed necessary  No required number of hours or topics  Covering state and federal law  Applicable to ALL LOs regardless of hire date  Much flexibility granted in training delivery methods April 15, IBA HR Conference20

21 Recordkeeping  Maintain records sufficient to evidence:  All compensation received from creditors, consumers, and other individuals or entities if bank acts as LO  All compensation bank pays to individual LOs  The compensation agreements that govern those receipts or payments  For three years after the date of payment or receipt of compensation. April 15, IBA HR Conference21

22 NMLS ID# Must disclose name and NMLSD ID# of  LO organization (bank) and,  Individual LO  Exactly as shown on NMLSR  Primary LO at time document is issued On the following:  Credit application  Note or loan contract  Security instrument On the following:  Credit application  Note or loan contract  Security instrument April 15, IBA HR Conference22

23 Questions? Additional Resources: CFPB Small Entity Guide: nce-guide_loan-originator.pdf nce-guide_loan-originator.pdf April 15, IBA HR Conference23

24 Ronette Schlatter Senior Compliance Coordinator Iowa Bankers Association April 15, IBA HR Conference24


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