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Loan Originator Compensation

Outlook Live Webinar
Thursday, March 17, 2011

The mandatory compliance date for the loan originator compensation rules is April 1, 2011. The rules are designed to protect mortgage borrowers from unfair or abusive lending practices that can arise from certain loan originator compensation practices. The new rules apply to compensation that is paid to mortgage brokers and the companies that employ them, as well as mortgage loan officers employed by depository institutions and other lenders. The rules also cover companies that originate and close loans in their own name using table funding from a third party.

The final rules, which apply to closed-end loans secured by a consumer's dwelling:

• Prohibit payments to loan originators based on the loan's interest rate or other terms and conditions of the transaction, except the amount of credit extended.
• Prohibit any person other than the consumer from paying compensation to an originator in a transaction where the consumer pays the loan originator directly.
• Prohibit loan originators from “steering” consumers to consummate a loan not in their interest based on the fact that the loan originator will receive greater compensation for such a loan.
• Provide a safe harbor to facilitate compliance with the prohibition on steering. A loan originator is deemed to comply with the anti-steering rule if the consumer is presented with loan options that include the following:
  
  
  1. The lowest interest rate for which the consumer qualifies;
  2. The lowest total dollar amount for points and origination fees, and
  3. The lowest rate for which the consumer qualifies for a loan with no risky features, such as a prepayment penalty, negative amortization, or a balloon payment in the first seven years.

This webinar is part of an ongoing series of events focused specifically on consumer compliance issues. The “Outlook Live” Audio Conference is a Federal Reserve System initiative produced in conjunction with the quarterly newsletter Consumer Compliance Outlook.