As part of the move to protect the consumer and create greater transparency in the mortgage industry, a set of guidelines monitoring compensation to lenders and mortgage loan officers is going into effect on April 1, 2011. The new rules on compensation cover things such as whether the lender or the client pays the mortgage broker/banker’s fees, the caps on what they can get paid and which (loan) factors the broker commissions will/cannot be based on. As everything that has happened in the mortgage industry over the past two year, it is good and bad- but always for the greater good.

As part of this new procedure, each mortgage broker, banker and lender must create an internal policies and procedures plan outlining how they will calculate the loan compensation and pay their loan officers. This seems to have caused a lot of crying in the industry, because truly no one wants to do the extra work.

 I have included within the language of my company’s written plan which will be sent to the lenders we work with. I post this as part of the consumer transparency thing, so people can see what their lender should be doing. I also post it as an example for my colleagues to use when preparing their own. Please note that industry professionals should not simply cut and paste the language below, but use it as a model to tailor their own policies and procedures.

 

Circle Mortgage Corporation

Policies and Procedure Plan for Broker Compensation

The Company created and updated the policies and procedures regarding mortgage loan originator compensation to comply with the mortgage loan originator compensation rule set forth in Section 226.36 of Regulation Z, effective April 1, 2011.

There are XX loan originators and producing branch managers.

Compensation to the mortgage loan originator is based on a percentage of the mortgage loan amount extended to the client and is fixed according to agreement between the mortgage loan officer and mortgage broker.

There are set minimum and maximum dollar amounts for the compensation paid to of mortgage loan originator.

Compensation is not based on any of the following parameters: interest rate; APR; existence of a prepayment penalty; loan to value; borrower’s credit score; the amount of fees collected, Community Reinvestment Act eligibility; existence of mortgage insurance, loan’s profitability; or loan type, such as different compensation for firsts mortgage,  second mortgages, FHA, VA, USDA,  purchase mortgage or refinance.

Broker compensation will be either paid entirely by the lender providing the mortgage or the consumer, but never both.

The mortgage broker and mortgage loan originators will be originating both lender and consumer paid loans as a salaried employee.

There are company controls in place to ensure that affiliates of any mortgage loan originator will not provide any settlement services on the mortgage loan.

The records of the company compensation policies will be reviewed annually and kept as part of company records.

The loan level compensation paid to mortgage loan originators are retained for a minimum of two year.

Signed and dated,

March 21, 2011

 

Dale Siegel, President

This is to protect me…….

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