Lenders rush to meet Fed's Reg Z rules on loan officer pay
Mortgage brokers and lenders are running in a deep fog as they scramble to comply with broker and loan officer compensation rules that take effect April 1. Brokers and loan officers have known about the guidelines outlined in the Federal Reserve's Regulation Z for months, but many firms are still tinkering with compliance plans, law firm Patton Boggs said in its recent banking report. In fact, as the Fed reveals more about how to meet the demands of Reg Z, brokers and lenders are finding themselves in a tight race to get the right compliance structure in play before the rule takes effect. Regulation Z is already a sore spot among mortgage brokers. The rule will change broker and loan officer compensation by conditioning pay on the amount of credit extended. After analyzing a recent Fed webinar on the changes, Patton Boggs wrote, "Fed staff confirmed their position regarding loan originator compensation by mortgage brokers in consumer-paid transactions. Specifically, the staff has not changed their view that if a consumer pays a mortgage broker in a transaction, the broker cannot pay its loan originator employee who worked on the transaction any amount other than a standard salary or hourly wage that is not tied to the transaction." In discussing the above dilemma, Patton Boggs said, "Fed staff suggested that the issue could be resolved by the consumer paying points to the creditor from which the creditor could pay the broker entity. In this case, the broker would be paid by the lender and could compensate its employees in accordance with their compensation plans without running afoul of the dual compensation provisions of the rule." Another issue perplexing mortgage brokers is a Fed guideline that will prohibit brokers with branches in multiple states from applying different compensation standards in those areas. "Many were under the impression that compensation could vary by location based on permissible factors, such as cost of living differences," Patton Boggs said. "However, the staff advised that if a broker has an office in Anytown, Ohio, for example, and an office in another area of Ohio, a creditor doing business with the broker must have the same compensation arrangements with both branches." Write to Kerri Panchuk.