QUESTION
Our loan officer compensation plan has been approved by the
Board of Directors. Over time, it seems that the factors used for adjusting
compensation have changed. We want a core set of compensation factors that must
always be applied. Is there a minimum set of compensation factors?
ANSWER
There is a set of factors, mostly in the form of
illustrative examples; nevertheless, if these are to be used as a sort of core
set of compensation methods, they can be relied on – unless otherwise
prohibited by law. This list is not to be viewed as exhaustive.
Many compensation plans have at least the following nine
compensation methods.
- The loan originator’s overall loan volume delivered to the creditor. This can be based on the total dollar amount of credit extended or the total number of originated loans.
- The long term performance of the originator’s loans.
- An hourly rate of pay to compensate the originator for the actual number of hours worked.
- Whether the consumer is an existing customer of the creditor or a new customer.
- A payment that is fixed in advance for every loan the originator arranges for the creditor. For illustration purposes, an example would be $600 for every originated loan or $1,000 for the first 1,000 arranged loans and $500 for each additional arranged loan.
- The percentage of applications submitted by the loan originator to the creditor that result in consummated transactions.
- The quality of the loan originator’s loan files submitted to the creditor. An example would be the accuracy and completeness of the loan documentation.
- A legitimate business expense, such as fixed overhead cost.
- Compensation that complies with the exception for compensation based on a fixed percentage of the transaction amount, which can be subject to a minimum and maximum dollar amount.
[75 FR 58,509, 58,536, codified in 12 CFR Supplement I to
Part 226-Official Staff Commentary § 226.36(d)(1)-3]
Jonathan Foxx
President & Managing Director
Lenders Compliance Group
