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thorlaw
07-11-2011

ONGOING REMINDERS ABOUT COMPENSATION UNDER THE
DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT

FACTS

1. For purposes of this rule, (12 CFR §226.36(d)(2)) payments made by creditors to loan originators are not payments made directly by the consumer, regardless of how they might be disclosed under HUD's Regulation X, which implements the Real Estate Settlement Procedures Act (RESPA).
2. Because the long-term performance of the loans is not a term or condition of a loan it is permissible to go back and “ding,” or take back part or all of the commission on a particular loan from a loan originator, if the loan has an early default because that's not a term or condition(per Jan. 2011 webinar MBA with FRB staff). However, you should be certain you are not violating wage and hour laws of the Fair Labor Standards Act (FLSA) and not violating state wage and hour laws as set forth by the Division of Labor Standards Enforcement (DLSE) in California or for that matter, any other state.
3. Compensation to originators can vary based on how the loan application was produced, for example, commissions may be higher for leads generated by the originator versus the company. Federal Reserve Board staff states that as long as compensation is not based on loan terms or conditions, or a proxy, it is okay. If pricing of two loans differs, there may be a concern that channel is being used as a proxy for loan terms or conditions but other factors may justify differences. Be certain you can prove it in the event of an audit.
4. A Mortgage Loan Originator is a person who arranges, negotiates or obtains a loan for a consumer AND whose compensation is based on whether any particular loan is originated. Thus there are two sets of requirements to be a loan originator—(1) arranging, negotiating or obtaining a loan for a consumer and also (2) having compensation based on any particular loan. Both sets of requirements must be met for a person to be a loan originator. (mbaweenar23)
5. A loan originator may not pay some or all of the third party fees of a consumer or otherwise credit the consumer out of his own pocket.
6. For purposes of the DODD-FRANK rule affiliates are treated as a single person, so that when a lender acts as a mortgage broker and is thus, a loan originator for purposes of the rule where there is a party that is an affiliated settlement service provider, such as a title company, the bona fide and reasonable charges received by the affiliated settlement service provider are ALSO considered part of the loan originator compensation. (So if the loan originator owns a separate escrow the escrow charges would be part of the compensation for purposes of Dodd Frank. (mbawebinar38)

MORAL

These are just reminders and memory joggers so you stay or get in compliance. Remember when the Consumer Finance Protection Bureau goes on line July 21, audits will start soon thereafter. They have already started transferring attorneys from HUD/RESPA and other areas to the new bureau.

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