Loan Originator Compensation Rule
by Jane Pannier
TRUTH IN LENDING, REGULATION Z
Effective Date: January 10, 2014
SUMMARY
The Loan Originator Compensation Rule and the corresponding amendments to Regulation Z implement changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). This new rule addresses how loan originators of mortgage loans are compensated, the qualifications of and registration or licensing of loan originators, and compliance procedures for depository institutions. The rule also revises and clarifies existing regulations and CFPB staff commentary relating to loan originator compensation.
Regulation Z already prohibits basing a loan originator’s compensation on any of the terms or conditions of the transaction. The Dodd-Frank Act expanded on this by changing some of the defined terms, by requiring loan originators to meet qualification standards and depository institutions to establish and maintain procedures that are reasonably designed to assure compliance with these standards and the SAFE Act registration procedures. The new rule expands the requirement for loan originators to provide their license or registration number to all loan documents and prohibits loan originator compensation that varies based on the terms of the loan, other than certain terms, such as the principal amount. In addition, the new rule generally prohibits loan originators from being compensated simultaneously by both the consumer and a party other than the consumer.
RECORD RETENTION, SECTION 1026.25
The new rule has increased from two years to three years the period of time to document compliance with the loan originator compensation requirements. Specifically, a creditor must maintain records sufficient to show all compensation it has paid to its loan originators and any compensation agreements it may have with them for three years from the date of the payment. A loan originator organization must retain records that document all compensation it receives from a creditor, consumer, or other party, as well as the compensation agreements that govern the receipt of this compensation for a period of three years from the date of the receipt of the payment.
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