LOAN ORIGINATOR COMPENSATION: 2014 SEPTEMBER

Transcription

1 1 BANKERS ASSURANCE COMPLIANCE CONFERENCE LOAN ORIGINATOR COMPENSATION: 2014 SEPTEMBER 26, 2014 TriNovus, LLC 2013 Presenter: Leah M. Hamilton, Director TriComply Services About the Speaker 2 Leah M. Hamilton Director of TriComply Services with TriNovus Serves about 850 financial institutions; users More than 18 years of experience in the financial services industry A licensed attorney for more than 10 years, received Juris Doctorate from Northern Illinois University College of Law, and her Bachelor of Arts in General Studies degree from the University of Texas at Dallas with major in law and minor in business management Nationally recognized speaker on banking compliance, including BSA/AML, offering real world stories to offer levity to very tough topics 1

2 What you will learn 3 Coverage Who is and who isn t a loan originator Loan originator qualifications What is compensation What is a term or proxy There s more Action Plan Resources Which loans are covered? 4 Must be: Consumer Closed end Secured by a dwelling Can be: First or subordinate lien Reverse mortgage Can t be: HELOC Timeshare NEW Effective date: January 1 st,

3 Who is a loan originator? 5 MORTGAGE LOAN ORIGINATOR SAFE ACT 12 CFR LOAN ORIGINATOR REGULATION Z 12 CFR Takes a residential mortgage loan application; and Offers or negotiates terms of a residential mortgage loan For compensation or gain Takes an application, or Offers, arranges, assists a consumer in obtaining or applying to obtain, negotiates, or otherwise obtains or makes an extension of consumer credit for another person; or through advertising or other means of communication represents to the public that such person can or will perform any of these activities For compensation or gain More LO details 6 Includes An employee, agent, or contractor of the creditor or loan originator organization if the employee, agent, or contractor meets this definition A creditor that engages in loan origination activities if creditor does not finance the transaction at consummation out of the creditor's own resources, including by drawing on a bona fide warehouse line of credit or out of deposits held by the creditor All creditors that engage in loan origination activities are loan originators 3

4 Taking an Application 7 If you: Fill out the application (paper or electronic; in person or over the phone), or Process or analyze the data on the application, or Discuss specific credit terms Then, you are an LO If you: Hand a consumer an application form, or Explain the information requested on an application or where on the application the information goes at the consumer s inquiry, or Accept or receive a completed application, or Pass the application on to a LO without helping the consumer complete it or talk about specific credit terms Then, you are not an LO Who isn t a loan originator? 8 Does not include: Performs purely administrative or clerical tasks on behalf of a person who does engage in such activities Does not take a consumer credit application or offer or negotiate credit terms available from a creditor, A servicer or servicer's employees, agents, and contractors who offer or negotiate terms for purposes of renegotiating, modifying, replacing, or subordinating principal of existing mortgages where consumers are behind in their payments, in default, or have a reasonable likelihood of defaulting or falling behind Exception does not apply if offer or negotiate a transaction that constitutes a refinancing or obligates a different consumer on the existing debt Other exceptions Certain manufactured home retailer employees Certain real estate brokerage firms, unless such person is compensated by creditor or loan originator or by any agent of such creditor or loan originator for a particular consumer credit transaction Seller financer that meets certain criteria 4

5 Simplicity 9 Application related administrative and clerical tasks Inquiries and general information Describe loan processing process Underwriting, credit approval, credit pricing Simplicity 10 All MLOs are LOs... but... Not all LOs are MLOs 5

6 Loan originator qualifications 11 Licensed Registered and licensed NMLS registered NMLS ID# For example MLOs Loan originator qualifications 12 Non-licensed Criminal back ground check Don t count expunged or pardoned records Credit report NMLSR info (if any) What LO tells you Can t have Felony in domestic violence or military court in last 7 years Felony involving act of fraud, dishonesty, breach of trust, money laundering at any time Okay if regulator says so though Subject to conditions 6

7 What is compensation? 13 Salaries Commissions Bonuses Incentives Prizes, awards, trips, days off, gift cards Call a rose by any other name What is okay? 14 Compensation into a designated tax-advantaged plan or a benefit under a defined benefit plan that is a designated tax-advantaged plan. If a defined contribution plan, contribution shall not be directly or indirectly based on the terms of that individual loan originator's transactions Examples 401k and other IRS defined retirement plans Employee annuity plan 7

8 Let s talk about that bonus 15 Non-deferred profits-based compensation plan i.e., any arrangement for the payment of non-deferred compensation that is determined with reference to the profits of the person from mortgage-related business), provided that: Not directly or indirectly based on the terms of that individual loan originator's transactions; and At least one of the following conditions is satisfied: Compensation paid to an individual LO does not, in the aggregate, exceed 10% of his/her total compensation corresponding to the time period for which the compensation under the non-deferred profits-based compensation plan is paid; or Individual LO was a LO for 10 or fewer transactions during the 12- month period preceding the date of compensation is determined What is a term of a transaction 16 Any right or obligation of the parties to a credit transaction Amount of credit extended is not a term of a transaction or a proxy for a term of a transaction Provided that based on a fixed percentage of amount of credit extended May be subject to a minimum or maximum dollar amount Based on a term of a transaction Does not require a comparison of multiple transactions or proof that any person subjectively intended that there be a relationship between the amount of the compensation paid and a transaction term Determination is based on the objective facts and circumstances indicating that compensation would have been different if a transaction term had been different. Generally, when there is a compensation policy in place and the objective facts and circumstances indicate the policy was followed, the determination of whether compensation would have been different if a transaction term had been different is made by analysis of the policy. In the absence of a compensation policy, or when a compensation policy is not followed, the determination may be made based on a comparison of transactions originated and the amounts of compensation paid. 8

9 What is a proxy? 17 Terms Interest rate, APR LTV Prepayment penalty included Closing costs Not a proxy Consumer's credit score Representation of credit risk, e.g., DTI Assume that consumer A and consumer B receive loans from the same loan originator and the same creditor Consumer A has a credit score of 650, and consumer B has a credit score of 800 Consumer A's loan has a 7% interest rate, and consumer B's loan has a 6.5% interest rate because of consumers' different credit scores If creditor pays LO$1,500 for consumer A's loan and $1,000 for consumer B's loan because the creditor varies compensation payments in whole or in part with a consumer's credit score, LO s compensation would be based on the transactions' terms or conditions What can we do? 18 LOs overall loan volume total dollar amount of credit extended total number of loans originated, delivered to the creditor Long-term performance of the originator's loans Cannot ding LO for a current loan or retroactively on a prior transaction Can re-evaluate comp plan for loans going forward If last quarter (Q1) was bad, next quarter (Q2) pay 5% instead of 10% on loans made in Q2 Q1 was outstanding, so want to increase percentage Paid 10% Q1; pay 15% Q2 Okay even if Q2 interest rates are all higher Hourly rate of pay for the actual number of hours worked Whether consumer is an existing customer or a new customer 9

10 What can we do? 19 Payment amount fixed in advance for every loan LO arranges e.g., $600 for every loan arranged for the creditor, or $1,000 for the first 1,000 loans arranged and $500 for each additional loan arranged Cannot vary with the amount of credit extended e.g., 1% of amount of credit extended for loans of $300,000 or more, 2% of amount of credit extended for loans between $200,000 and $300,000, and 3% of amount of credit extended for loans of $200,000 or less Percentage of applications submitted by the LO to creditor that resulted in consummation Quality of the loan originator's loan files e.g., accuracy and completeness of the loan documentation Legitimate business expense There s more TRACKING THE MONEY Record retention 3 years from the date of compensation paid Not the consummation date unless paid that day DISCLOSURES REQUIRING ID# SAFE Act First written communication Regulation Z Each copy Application Note / loan agreement Security instrument LO and Institution NMLS name and ID# GSEs and investors 10

11 Action Plan Your Action Plan 22 Read the rules Skim the proposed rules Don t wait for the final! Submit comments Reach out to your vendors Are they already preparing? Software Settlement agents Brokers Closely monitor CFPB website Identify staff impacted Training: who, what, how and when Risk Assessment Products/Services Monitoring schedule Schedule sample test early on Budget: time, resources, $$ 11

12 Action Plan 23 Four P s Policies Procedures Products Personnel 23 Questions? 12

13 25 A strong foundation in compliance is perhaps the most important building block of your institution, and TriNovus TriComply Services can provide you with the resources you need to ease the burden in today s complex compliance environment. TriComply Knowledgebase We ll answer questions specific to your institution via our online Knowledgebase where you can also view questions and answers to issues other institutions are facing TriComply Compliance Manual Access to our regulatory compliance manual, written by bankers for bankers Policies We'll review your current compliance policies or create a new template for all to share Access to the TriComply Policy Manual Advertisements & Disclosures Compliance Newsletter Receive a weekly compliance newsletter authored by Blair Rugh, Leah Hamilton and the TriComply Team addressing the most pressing compliance issues and providing advice for your institution Online Training Library View and share our online compliance videos with your staff Certificates of completion provided Compliance Calendar Keep up-to-date with all the compliance deadlines by using the handy Compliance Calendar located in our TriComply Knowledgebase We'll review your ads & disclosures for compliance, including UDA(A)P and best practices CONTACT: STAR LARGIN SLARGIN@TEMENOS.COM Thank You! 13