Compensation: One Statute Too Many?


Compensation: One Statute Too Many?

Is the mortgage industry misreading the FRB's loan officer compensation rules?

Mortgage loan originator compensation rules are due to go into effect on April 1, 2011.

Is a misreading of the Federal Commentary about such compensation in connection with a particular loan transaction causing rampant confusion?

This article seeks to provide some needed clarification.

It explores a provision in the Federal Comments on a TILA section, entitled "Compensation in connection with a particular transaction" [§ 226.36(d)(2)].

One would think that the plain meaning of the text - such as it may be derived in its context - is sufficiently clear to make sense of the Fed's actual position on loan officer compensation, at least with respect to compensation paid to a mortgage loan originator directly by a consumer.

However, many of our clients have contacted me with a position announced by the FRB itself which seems to contradict the my aforementioned interpretation. Various industry and media organizations are recently stating that the FRB holds that employees of mortgage brokers can only be paid salary or hourly wages on loan transactions where compensation is received by the consumer. This view is alleged to be held by the FRB and the FRB's interpretation is also allegedly held by some mortgage industry counsel.

Perhaps I am in the minority, but the plain meaning of the text - as I see it - does not prevent a loan officer from receiving compensation from a mortgage broker on specific, consumer paid, loan transactions, so long as the above-mentioned constructs are fully met. If this were otherwise, many other TILA statutes - and numerous RESPA statutes - would become incoherent.

However, I don't think I've got the wrong interpretation. Maybe the FRB should read its own statutes and then revise its own commentary. Until that happens - and I expect it to happen! - let's keep in mind that the rampant confusion in the mortgage industry, caused in no small part by the revised TILA loan officer compensation requirements, is just one more reason why the implementation date of April 1, 2011 should be delayed.

The article provides a brief, but hopefully useful outline of the aforementioned provision and offers an interpolation and an interpretive outline.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Jonathan Foxx, Lenders Compliance Group | Attorney Advertising

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