Loan Originator (LO) Compensation II. Purpose, Coverage and Overview; “Loan 1 Originator” and “Compensation” Defined Major Components of Rule . Prohibits steering a consumer into a loan that generates greater compensation for the loan originator, unless the consummated loan is in the consumer's interest. Prohibits loan originator compensation based on the terms of a mortgage transaction or a proxy for a transaction term. Prohibits dual compensation (i.e., loan originator being compensated by both the consumer and another person, such as a creditor). Prohibits mandatory arbitration clauses and waivers of certain causes of action. 2 FEDERAL DEPOSIT INSURANCE CORPORATION Major Components of Rule Con’t. Prohibits the financing of credit insurance (this prohibition does not include mortgage insurance). Requires depository institutions have written policies and procedures. Imposes qualification requirements on loan originators. Requires name and NMLSR identification information of loan originator with primary responsibility appear on the credit application, note, and security instrument. Permits, within limits, paying loan originators compensation based on profits derived from a bank’s mortgage-related activities. (“bank” includes an affiliate of the bank and/or a business unit within the bank or affiliate). 3 FEDERAL DEPOSIT INSURANCE CORPORATION Key Compensation Prohibition No loan originator can receive and no person can pay to a loan originator, directly or indirectly… . Compensation in an amount that is based on terms of transactions (or proxies for terms of transactions): • a single loan originator, or • multiple loan originators (limited exception: some profits- based compensation). 4 FEDERAL DEPOSIT INSURANCE CORPORATION Covered Transactions A covered transaction is a consumer- purpose, closed-end transaction secured by a dwelling, whether by a first or subordinate lien. It includes reverse mortgages, condominiums, and cooperatives. 5 FEDERAL DEPOSIT INSURANCE CORPORATION Loan originator Any person who, for or in expectation of compensation or other monetary gain, engages in certain specified activities, including: . Taking an application; . Offering particular credit terms, or referring a consumer to a particular loan originator; or . Assisting a consumer in obtaining or applying for a covered mortgage loan by advising on specific credit terms. 6 FEDERAL DEPOSIT INSURANCE CORPORATION Taking an Application A person takes an application by: 1. Filling out a consumer application; 2. Inputting the information into an online or other automated system; or 3. Taking information from the consumer over the phone to complete the application. 7 FEDERAL DEPOSIT INSURANCE CORPORATION Offering Terms A person offers terms of a mortgage loan by: 1. Presenting particular credit terms for consideration by a consumer; or 2. Recommending or referring a consumer to a particular loan originator, creditor, credit terms, or credit product (based on information obtained from the consumer). 8 FEDERAL DEPOSIT INSURANCE CORPORATION Assists a Consumer by… A person assists a consumer with a residential mortgage loan by: 1. Advising on specific loan terms 2. Preparing loan packages, or 3. Collecting information on behalf of the consumer. 9 FEDERAL DEPOSIT INSURANCE CORPORATION Who Are Not Loan Originators? Categories of people generally not loan originators include: • A person who, acting on behalf of a loan originator, engages in loan processing activities (for example, a processor, underwriter, or closer); • A servicer or a servicer’s employee (unless loan origination activities are performed in connection with a refinancing; renegotiating or modifying an existing mortgage is not a loan originator activity); and • A person who performs purely administrative or clerical tasks on behalf of a loan originator or provides a mortgage application form to a consumer or returns the completed form to the creditor or originator. 10 FEDERAL DEPOSIT INSURANCE CORPORATION Scenario #1 I’m sorry, but I am not the person you need to talk with to Sure. Here is an application.I’m actually Complete on my way it when to work you and have don’t time have discuss interestYes we rates do. As or youspecifics can see, regarding we offer our home and bring it back atThattimeI’m your shopping rightsounds convenience. now great. for to ameet new After with home. you anyone. return Can Couldit I will I mortgage severalloans.Hi, Canwelcome Sarahtypes you ofis tell tohomeour theme home Bankmortgagethe currentmortgage specialist. give it to Sarah, andThankcouldyou she tell get willyou me ancontact for if application this all of bankyou your directly offers and drop home to discuss it off If you haveloans timeof Anytownto interestright meet now the ratehow I needscan on can seeyour I of help if our30 she year is available to your options. tomorrow?mortgage loans? meet withcustomers. you.you helpfixed today?. home mortgage loan? 11 FEDERAL DEPOSIT INSURANCE CORPORATION Scenario #2 I really appreciate all your help yesterday. I I’mI am reallyNo workednot I can’t.sorry,looking on butToday my for our homesomeone is home my mortgage day mortgage to toqualify pick application upme. the I justkids last need someInight, amhelp really Hibutwith welcome could notthe theterminology not back.person figure Are youout on howthe application to complete and specialistfrom Ok, daycare.is out let ofme the I lookreally office at need your until tolater get this this process someneeda guidancecouple toyou talk of here on thewith how tosections. to drop tocomplete enter off Is my there a information. anyone Please, I afternoon.startedapplication Isas there soon any asand possible.chance see what you Could I could you stop help only loanhaveavailable application. ayour small who home window could mortgage answer of time ato couple figure ofout my backme around completecan 2:00?do. this application? financingquestions? options.application? 12 FEDERAL DEPOSIT INSURANCE CORPORATION Scenario #3 Good news,Two days after ago, analyzing I found your the application,perfect home credit I dropped off my mortgage application over a week ago, but I report,willNormally beand andable I madewouldemployment to tell the neveryou sellers if doyouhistory this anwill offer.butwe be willI’mapproved Last familiarbe able night for withto Ifinancing offer our stillI’m haven’t Ireally can’t heard sorry,wait until fromyou tomorrow. haven’ther. 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I will qualifyconnectHi,Thathave for how isa with beenloangreat are Sarah. you with approvednews. doing your She You bank, today?for is just outfinancing the made of How coststhe by involved, the end ofand my notAgain,I’ll begrab able needI can’tyour to to provideapplication discuss you my and with financing supporting ana preapproval official options preapprovaldocumentation with letter, but potentialofficecanmytoday. day.today,Iinterest help Is you?but thererate. will anythingbe back tomorrow.you can do to help me? letter.I offcan Sarah’s haveLetSarah, me Sarah deskThank goyour grab andtype home you yourrun that. mortgage a fileup quick .when analysis specialist. she returns for you. tomorrow. 13 FEDERAL DEPOSIT INSURANCE CORPORATION Loan Originator Test Two part loan originator test: 1. Person engages in loan originator activity; and 2. Person performs activity for, or in expectation of, compensation. 14 FEDERAL DEPOSIT INSURANCE CORPORATION Individual Loan Originator and Loan Originator Organization . Individual Loan Originator: A natural person who meets the definition of a loan originator (by engaging in loan originator activity) . Loan Originator Organization: Any loan originator who is not an individual loan originator (e.g., trusts, sole proprietorships, partnerships, corporations) • For purposes of the rule’s compensation provisions, banks become loan originator organizations when they broker loans or when they don’t use their own resources to fund loans (commonly referred to as “table funding”) • For purposes of the rule’s qualification and unique identifier provisions, banks are always loan originator organizations in all transactions 15 FEDERAL DEPOSIT INSURANCE CORPORATION Compensation Compensation includes: . Salaries . Commissions . Stocks . Financial or similar incentives (e.g., bonuses or awards of trips or merchandise) . Loan fees retained by the loan originator (regardless of fee label, e.g., “processing fee”) Compensation does not include bona fide and reasonable charges passed onto a third party, or paid to a loan originator for services performed that are not loan origination activities (e.g., title insurance) 16 FEDERAL DEPOSIT INSURANCE CORPORATION.