1. Iowa Bankers Association
April 15, 2014
Loan Originator
Compensation
2014 IBA Human Resources Conference
Presented by:
Ronette Schlatter, CRCM
Senior Compliance Coordinator
2014 IMA HR 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, 2014
2014 IBA HR Conference

3. Note: broader definition than SAFE Act!
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
Note: broader definition than SAFE Act!
April 15, 2014
2014 IBA HR Conference

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, 2014
2014 IBA HR Conference

5. LO Activities do NOT include…
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
Providing general information in response to consumer inquiries
Loan-processing activities, e.g., assembling credit application packages & supporting docs
Verifying application info
April 15, 2014
2014 IBA HR Conference

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, 2014
2014 IBA HR Conference

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, 2014
2014 IBA HR Conference

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, 2014
2014 IBA HR Conference

9. Loan Term “Proxies” Two-Step Analysis Proxy Examples
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, 2014
2014 IBA HR Conference

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, 2014
2014 IBA HR Conference

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, 2014
2014 IBA HR Conference

12. Non-Deferred Profit-Based Compensation
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
Bonus pools
Profits pools
Bonus plans
Profit-sharing plans
Awards of merchandise, services, trips, or similar prizes
April 15, 2014
2014 IBA HR Conference

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, 2014
2014 IBA HR Conference

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, 2014
2014 IBA HR Conference

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, 2014
2014 IBA HR Conference

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, 2014
2014 IBA HR Conference

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, 2014
2014 IBA HR Conference

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, 2014
2014 IBA HR Conference

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
April 15, 2014
2014 IBA HR Conference

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, 2014
2014 IBA HR Conference

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, 2014
2014 IBA HR Conference

22. NMLS ID# Must disclose name and NMLSD ID# of On the following:
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
April 15, 2014
2014 IBA HR Conference

23. Additional Resources: CFPB Small Entity Guide: http://files
Questions?
April 15, 2014
2014 IBA HR Conference

24. Senior Compliance Coordinator Iowa Bankers Association
Ronette Schlatter
Senior Compliance Coordinator
Iowa Bankers Association
April 15, 2014
2014 IBA HR Conference