Regulation Z has been amended and there are changes that were added regarding loan originator compensation prohibitions. The rules came into effect on 1st April 2011 and because of their importance we will quickly look at these new regulations in a rather detailed manner.
The Department of Labor has given new interpretations of the exemption of loan originators in relation to overtime. There will be a need for modifications to the already existing compensation agreements and depending on the origination channels, more complex monitoring and tracking so as to meet the compliance. This will require that there be intensive training across many associated departments.
The section, for brevity, includes definitions related to Part 226.36 which are not necessarily as these relate to other provisions in Regulation Z: loan originator compensation.
Loan Originator: is any individual, for compensation, who negotiates for another person, an extension of consumer credit. Loan Originator includes a creditor’s employee and also includes a mortgage broker’s employees. In the same definition, the rule also states that there are times when consumers can carryout the necessary negotiations on their own but strictly not for any other person or in that case for monetary gains. Therefore, under this section, they can not be referred to as loan originators.
Mortgage Broker: is basically a loan originator who is not a creditor’s employee. Mortgage brokers include all companies that take part in activities included under loan originator description.
Creditor: this is the indiviual who is not deemed to become a loan originator. Creditors do not close a loan in its name.
Table Funding: a person is included in loan originator as long as they satisfy the definition even if they use table funding through a third party. Table funding, according to the rules, occurs when a creditor doesn’t provide the required funds for the transaction from their own resources. Though Regulation Z states that the creditor is a person who is supposed to receive the payment of the debt, under Part 226.36, that person is considered a loan originator.
Compensation: this refers to any financial or incentives similar to commissions or salaries. It also includes periodic or annual bonuses such as awards or services or merchandise. It includes the retained loan amount by the originator and does not depend on the name or label of any fee whatsoever. It however does not include any amount that is received by the originator for bona fide payment or third party charges like title insurance.
Loan Terms and Conditions: according to Regulation Z: Loan Originator Compensation, any individual is not supposed to pay compensation to loan originators. There is a rule that provides an example thatcovers the payment of employees by a mortgage broker and can be referred to for more information.