Comprehending LO Comp Rules and Compliances

LO comp Rules are something you should be definitely aware of as it protects consumers from dealings with creditors as well as lenders.

What is LO comp Rule?

The loan originator compensation rules are actually the modified form of the Truth in Lending Act (TILA) which was enacted in the year 1968 so as to secure consumers from fraudulent dealings with creditors, known as Regulation Z.

With the housing crisis and the financial downturn, the TILA’s LO comp Rules were put into Regulation Z in the year 2010.  This prohibited compensation of any kind of mortgage loan originator on a term of the transaction other than the specified loan amount. The LO Comp Rule is mainly to prevent any kind of increased compensation for the originator through unfavorable terms and conditions to consumers.

This applies to every type of loan originator in the USA, which includes mortgage companies, individuals who originate loans, or depository institutions.

What Are the Main Key Restrictions For the LO Comp Rule?

1. The loan originators might not receive compensation regarding interest rate, collateral type, origination points, or fees to a creditor or a loan originator. Now, this rule is not applicable for payment of the loan amount.
2. The loan originators cannot receive dual compensation. This means any kind of incentive to the loan officer from the third party or consumer.
3. The loan originators should not steer the borrowers for a type of loan which leads them to better compensation. It is the essential duty of the loan officer to guide borrowers regarding the best option for the borrower.
4. The payment of bonus from the pool of bonus that takes care of the profits received from a closed-end mortgage transaction protected by a dwelling is completely prohibited.

What Are the Recent Changes Regarding LO Compensation Rules?

The major change regarding the LO Comp Rule came in the year when the CFPB clarified the final rules regarding additional clarification on the originator compensation rules; Mostly, the provisions came into effect in the year 2013; however, the remaining provisions came into effect in 2014.

The Final Rule which we see now also clarifies the Truth in Lending Act rule, which completely prohibits the compensation of loan originators, which would be based on a pool of transactions. This restriction also is applicable to profit-sharing and retirement plans.

How Can You Remain Compliant With the New Changes?

The Lo comp rule will be subject to certain changes most of the time; however, we have compiled the following methods regarding the calculation of compensation of the loan originator.

1. The overall dollar volume of the loan originator which is delivered to the creditor
2. The performance of the originator’s loans
3. Hourly pay rate regarding the actual hours worked
4. Loans granted to new customers and existing customers
5. Fixed payment in advance for every loan originator who arranges for the credit
6. Percentage of the originator’s loan applications that close
7. The accuracy and quality of the loan files of a loan originator.

Summing Up

By reading this now, we feel that you will be in a better position to understand LO Comp Rule and be in a better position regarding LO Comp recordkeeping.