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2013 Loan Originator Rule SMALL ENTITY COMPLIANCE GUIDE

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2013 Loan Originator Rule SMALL ENTITY COMPLIANCE GUIDE JANUARY 13, 2014 2013 Loan Originator Rule SMALL ENTITY COMPLIANCE GUIDE 1 Version Log The Bureau updates this guide on a periodic basis to reflect finalized clarifications to the rule which impacts guide content, as well as administrative updates. Below is a version log noting the history of this document and its updates: Date Version Rule Changes January 13, 2.1 Miscellaneous administrative changes 2014 November 8, 2.0 Definition of “loan originator”: Clarifies the definition of 2013 loan originator, including what constitutes assisting a consumer in applying for credit; defining “credit terms”; further describing administrative and clerical tasks; further describing loan processing activities such as coordination of the consummation of the credit transaction; and clarifying when an employee of a manufactured home retailer is not a loan originator. (See “Are you a loan originator” on pages 18-21.) Non-Deferred Profits-Based Compensation Plans: Clarifies permissible compensation payable to a loan originator under a non-deferred profits-based compensation plan. (See “How can non-deferred profits-based compensation payments be made in compliance with the rule?” on page 48 and “How does the 10-percent total compensation limit exception work” on pages 49.) Financing Credit Insurance Premiums: Clarifies the prohibition on creditor financing of credit insurance premiums, including when a creditor “finances” a consumer’s premium, and when the prohibition does not apply to premiums calculated and paid in full on a monthly basis. (See “What is the scope of the prohibition on financing credit insurance?” on pages 80) Revised effective dates of Loan Originator rule provisions: Changes the effective date for the 2013 Loan Originator Final Rule to January 1, 2014 for most of the rule’s provisions. (See “When do I have to start following this rule” on page 16). 2 June 7, 2013 1.0 Original Document 3 Table of Contents Version Log .......................................................... Error! Bookmark not defined. 1. Introduction ............................................................................................... 9 I. What is the purpose of this guide? ......................................................... 11 II. Who should read this guide? ................................................................. 12 III. Who can I contact about this guide or the rule? ....................................... 12 2. Overview of the Loan Originator Rule ....................................................... 13 I. What is the Loan Originator Rule about? ................................................ 13 II. Who is covered by the rule? .................................................................. 14 III. When do I have to start following this rule? ............................................ 15 IV. What loans does the rule cover? (§ 1026.36(b)) ........................................ 16 3. Are you a loan originator? (§ 1026.36(a)(1)) ................................................ 17 I. Can loan originators only be individuals? ................................................ 17 II. What actions make me a loan originator? ................................................ 17 III. When is a HUD-approved counselor a loan originator? (Comment 36(a)-1.v)) .............................................................................................. 21 IV. When is a seller financer a loan originator? (§ 1026.36(a)(4) and (5)) ............ 22 4. What does the rule say about compensation and fees? (§ 1026.36(a)(3)) ...... 24 4 I. What counts as compensation? .............................................................. 24 II. Does the name of the fee matter? .......................................................... 24 III. Does compensation include fees that loan originators collect and pass on to third parties? ............................................................................ 25 IV. How does the rule treat payments for services other than loan origination activities? ................................................................................. 26 V. Are dividends on stock owned by a loan originator considered compensation? (Comment 36(a)-5.vi) ................................................................ 27 5. How does the prohibition against compensation based on a transaction term work? (§ 1026.36(d)(1)) ............................................................................. 28 I. What compensation based on transaction terms is prohibited? (§ 1026.36(d)(1)(i)) .................................................................... 28 II. What is a transaction term? (§ 1026.36(d)(1)(ii)) ....................................... 29 III. Is the amount of credit extended a transaction term? (§ 1026.36(d)(1)(ii))..... 31 IV. How can the compensation policy be used to determine whether compensation is based on a transaction term? (Comment 36(d)(1)-1.i) .............................................................................................. 32 V. Can loan originator organizations receive compensation directly from a consumer? Can they split compensation with an individual loan originator? (Comment 36(d)(1)-2) ............................................... 33 VI. Does the rule prevent loan originators from receiving commissions for performing activities that are not loan origination activities? (§ 1026.36(d)(1) and comment 36(a)-5.iv) ..................................... 34 VII. How may loan originators increase or decrease their compensation in a particular transaction? (Comments 36(d)(1)-5 and -7) ..................... 35 VIII. Does the rule permit a loan originator to reduce its compensation to cover unexpected costs? (Comment 36(d)(1)-7) ............................. 35 IX. May periodic changes be made in a compensation arrangement? (Comment 36(d)(1)-6) ............................................................................... 36 X. Does the rule restrict how creditors can set rates and fees in a particular transaction? (Comment 36(d)(1)-4) .............................................. 37 5 6. How does the rule prohibit compensation based on a proxy for a transaction term? (§ 1026.36(d)(1)(i)) .......................................................................... 38 I. Is compensation based on a proxy for a transaction term prohibited? .......... 38 II. What is a proxy for a transaction term? ................................................... 38 III. Is the amount of credit extended a proxy for a transaction term? (§ 1026.36(d)(1)(ii)) ................................................................... 39 7. Are there permissible or “safe” compensation methods provided for under the rule? (Comment 36(d)(1)-2.i) .............................................................. 40 8. How does the rule prohibit compensation based on the terms of multiple transactions conducted by multiple individual loan originators? ................ 42 I. What does the rule say about compensation that is based on the terms of multiple transactions conducted by multiple individual loan originators? (§ 1026.36(d)(1)(i) and comment 36(d)(1)-1.ii) .............. 42 II. Does the rule permit a loan originator to receive compensation as part of a retirement or bonus plan that is based on mortgage-related business profits? (§ 1026.36(d)(1)(iii) and (iv)) ............................................ 45 III. How may compensation payments be structured in designated tax-advantaged plans to comply with the rule? (§ 1026.36(d)(1)(iii)) ........................ 45 IV. What is a non-deferred profits-based compensation plan? ......................... 47 V. How can non-deferred profits-based compensation payments be made in compliance with the rule? (§ 1026.36(d)(1)(iv) and comment 36(d)(1)-3) .............................................................................................. 48 VI. How may the payments from a non-deferred profits-based compensation plan be structured? .......................................................................... 49 VII. How does the 10-percent total compensation limit exception work? ........... 49 VIII. Is there another exception for individual loan originators who originate 10 or fewer mortgage loans? ....................................................... 53 9. What does the rule say about compensation from multiple sources? (§ 1026.36(d)(2)(i)) ................................................................................... 54 I. When a consumer directly pays the loan originator, can another person also pay the loan originator on the same transaction? (§ 1026.36(d)(2)(i)(A)) .............................................................................................. 54 6 II. What constitutes a direct payment from the consumer? (Comment 36(d)(2)(i)- 2.i and .ii) ................................................................................ 55 III. What if someone else pays compensation to the loan originator on behalf of the consumer? (§ 1026.36(d)(2)(i)(B)) ........................................... 56 IV. Can an origination charge be paid partly by the consumer and partly by the creditor? (Comment 36(d)(2)(i)-2.i and .ii) .................................... 57 V. If the consumer pays a loan originator organization, can the organization pay a commission to the individual loan originator who originated the transaction? (§ 1026.36(d)(2)(i)(C)) .............................................. 58 10. What are the qualification rules for loan originators? (§ 1026.36(f)) ............
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