We want to thank everyone who attended our webinar “Compliance Q&A Webinar.” As promised, below you will find answers to the questions asked during the webinar. You can also download the slides below.

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Question 1 – Our in-house officers are paid by salary, our secondary market officers will be paid on a basis point system.  Do we have any worries?

• Answer – Compensation given as salary is acceptable, as well as compensation based on basis points, as long as the basis points are based on loan amount.

Question 2 – If you submit a loan to one investor and they don’t approve it for some reason, and then it gets submitted to a different investor, would that be an allowable CIC if the investor charges are higher than the original investor charges?

• Answer – No, this would not be an acceptable changed circumstance. Please refer to RESPA FAQ:

xv) A mortgage broker issues a GFE based on one lender‘s loan products and origination fees, but places the loan with a different lender.

A: No, this would not constitute a changed circumstance.


Question 3 – Is it correct the TIL does not need to be signed? Do you recommend it be signed?

• Answer – The borrowers are not required to sign the TIL Statement. Yes, we recommend the borrower sign so you will have evidence they received and viewed the TIL Statement.

Question 4 – If a lender accepts a GFE that was issued by a broker, is the lender required to include a GFE in the 3 day disclosure package to the borrower?

• Answer – The lender is not required to issue a GFE when they receive the loan package. However, they are allowed to issue a GFE when they receive the loan package if they wish.

Question 5 – If the seller pays the closing cost, how does this affect the APR?

• Answer – According to RESPA, seller paid costs are still considered borrower paid costs. Therefore, since a borrower paid cost is reflected in the APR, all seller paid costs will affect the APR.

Question 6 – Where does Fannie say we have to pull a new credit report on all loans?

• Answer – If you are referring to the new LQI and Undisclosed Liabilites rule, Fannie Mae does not require you pull a credit report on all loans. If you are referring to audits, in section D1-3-03, Fannie Mae states that on all loans selected for audit “The lender must reverify the borrower’s credit history by obtaining a new in-file credit report for loans underwritten manually and through DU or other automated underwriting systems. The credit report must be from a source other than the original credit reporting agency.”

Question 7 – I am under the impression that since the Origination Fee cannot vary in percent as a function of the loan amount, L.O.’s must pre-determine how many points they will charge every future borrower. So I may decide that everyone gets charged 1.5 points. As a result, If Borrower A asks for a $400,000 loan, I’ll make way more than I would have prior to April 1. And Borrower B, who wants to buy a $60,000 house, with $10,000 down, will be lucky to get a call back. Is this accurate?

• Answer – In my opinion, yes, this would be an accurate statement.

Question 8 – Since the Fed announced in February 2011 that they were declining to finalize the interim rule from September 2010 and the interim rules from August 2009 then is there even a revised TIL requirement?

• Answer – Yes. The revised TIL is still required as this was not part of the rules that were delayed.

Question 9 – Our Bank pays our originators $500.00 for employee loans. Naturally this is different than our normal commission structure. Are we OK with this commission?

• Answer – Yes. A flat fee commission would be acceptable.

Question 10 – Are you saying that a doc prep fee and underwriting fee is now part of the LO compensation?

• Answer – No. Third party fees are still allowed under the new LO comp rule.

Question 11 – What is your advice on this? Our broker has been told he should create an independent DBA and have them invoice separately for processing. If you are a TPO and have an in-house processing department, lenders are recommending we do not include this fee in our base points.

• Answer – It would seem that this would be acceptable. However, remember if you are an affiliate, this would not be acceptable. There has not been clear guidance given regarding this situation.

Question 12 – What if you are a One Man Shop? Do ALL the Rules of the LO Comp apply?

• Answer – Yes, you are still subject to the new LO Comp rule.

Question 13 – In RESPA, when a borrower chooses to remove escrow from the loan application on the day of closing, should the GFE be re-disclosed?

• Answer – We recommend issuing a new GFE when there are any changes to the loan. However, it’s our opinion it would not be necessary to re-issue a GFE in this situation.

Question 14 – If you pull credit but don’t meet all the requirements to be classified as an “application” but the FICO is too low to complete a loan, you still need to send an adverse action notice, correct?

• Answer – Yes. ECOA’s definition of an application is much broader than RESPA’s definition. Because of this, you would need to issue an adverse action notice.

Question 15 – LO Compensation Question #1 (on slides): The answer to this does not seem to match what is indicated in 226.36 D-1-ii. For purposes of this paragraph (d)(1), the amount of credit extended is not deemed to be a transaction term or condition, provided compensation received by or paid to a loan originator, directly or indirectly, is based on a fixed percentage of the amount of credit extended; however, such compensation may be subject to a minimum or maximum dollar amount.

This would seem to indicate the Loan Officer can be paid based on a percentage of the loan amount even when a borrower paid scenario is used.

• Answer – The guidance given in the Federal Reserve’s webinar indicated that if a broker receives compensation directly from the borrower, then employees of the broker may only be paid salary or hourly. I would encourage you to listen to the recorded Federal Reserve webinar for additional guidance on this.

Question 16 – LO compensation question  #2 (on slides): If the borrower is given a credit from the lender for the higher rate, why is the credit not considered the borrower’s funds?  They are “paying” for the credit as part of the high rate. Further, this would keep it under D-1 as consumer paid and work in the consumer’s favor.

• Answer – Lender credits are acceptable as long as they come from the lender and not the broker/LO. If YSP is being paid, all of the YSP must be issued as a credit to the borrower.

Question 17 – LO compensation question  #2: Ok, so if this can’t be used to pay for compensation to the lender/broker, doesn’t this go against RESPA and how the GFE is set up? Since a break down is not required, is all of block one considered compensation to the lender/broker? Block one contains the origination charges and block two (credit) is subtracted to give the borrower an adjust origination charge.  It seems this undermines the intention of RESPA to work in favor of the borrower.

• Answer – Please refer to the RESPA Roundup March 2011 for clarification on how to complete the GFE after the LO Comp rule goes into effect.

Question 18 – Your GFE Cheat Sheet says that the “must go to settlement within __ days” should be NA if a loan is floating.  But, since rate being offered takes into account the anticipated lock period, shouldn’t this field include the anticipated lock period?  Otherwise, if you were pricing a 15 day lock, couldn’t borrower accept the GFE, but say that they want to settle in 60 days?

• Answer – Please refer to the RESPA FAQ page 24 question 11:

Q: The loan originator must state how many calendar days within which the applicant must go to settlement once the interest rate is locked. The number of days cannot be determined until the lock period is determined. May the loan originator enter a range of days for allowable lock periods? Must the loan originator account for the rescission period if the loan is rescindable?

A: No, the loan originator may not enter a range of rate lock options on the GFE. Line 3 requires the disclosure of the number of days in which the borrower must go to settlement. Line 3 in the ―Important dates‖ section on the GFE must be completed with one rate lock period and may need to take into account factors affecting the settlement date.


Question 19 – If your redisclosed GFE has higher fees due to a changed circumstance, don’t you need to allow 10 days on the “Fees Good Through” date?  You said dates don’t need to change, so I just want to clarify.

• Answer – Please refer to REPSA FAQ question #12 under the important dates section:

12) Q: If a revised GFE is provided due to changed circumstances or a borrower requested change, must a loan originator complete Line 2 in the ―Important Dates‖ section on the revised GFE if the shopping period has ended and the borrower has already expressed intent to continue with the application?

A: Yes, the loan originator must complete Line 2 in the ―Important dates‖ section with the same date from the last GFE. The borrower is not required to re-indicate the intent to proceed with the revised GFE because the borrower has previously expressed an intent to move forward with the transaction.


Question 20 – If we are a financial institution that pays only salary and hourly wages to LO’s, is there any reason to have to provide Safe Harbor information?

• Answer – I believe the Safe Harbor is only necessary if you are a broker.  If you are not brokering loans, you would not be subject to the Safe Harbor rule.

Question 21 – What if the lock is being extended? [regarding Important Dates section]

• Answer – We would recommend re-issuing a new GFE with the updated dates in the Important Dates section.

Question 22 – Different investors have different fees which are built into our origination fee. These show on our funding advice.  Will regulators expect to see these reflected differently on the origination charged? ie. RD loan fees are 257.00

• Answer – If audited, they may request these documents. I cannot speak as to what regulators will look for. They always seem to surprise me on what they will look for. I would recommend retaining any information in the file necessary to explain any questions to an auditor.

Question 23 – Flag Star fees are $300- would a regulator expect the origination fee to be $43 higher on the HUD for a Flag Star loan? This question regards what our regulator will want to see.

• Answer – I cannot speak as to what regulators will look for. They always seem to surprise me on what they will look for.  I would recommend retaining any information in the file necessary to explain any questions to an auditor.

Question 24 – Does the lender credit have to be on the GFE?

• Answer – No, a lender can issue a credit at closing and it would not be necessary to re-issue a new GFE, as the costs to the borrower are decreasing.

Question 25 – So how do you clear this issue?  The borrower cannot pay it because this would change fees that should have been disclosed.  The lender won’t eat the fees. So as a lender, do we deny the loan and have the broker start all over?  This is pertaining to fees that a broker forgot to disclose.

• Answer – The lender would need to cover the fees or the borrower would need to pay the difference.

Question 26 – If a customer did not want an escrow account at application and then decides to escrow during the underwriting process or before closing, do we need to re-disclose GFE to include the escrow since it is not one of the changes that effect tolerances?

• Answer – We recommend issuing a new GFE when there are any changes to the loan. Also, if there is any change to the borrower credit (YSP) due to the escrow change, you would need to redisclose.

Question 27 – On a zero cost loan, if you disclose at application on the GFE that you are going to give them a credit of $400 for the appraisal and the appraisal actually comes in at $375, do we still have to credit them the full $400 or can we credit them for the actual cost of the appraisal to the Bank of $375?

• Answer – You are not allowed to decrease the amount of a credit listed on the GFE unless there is an acceptable changed circumstance. A decrease in the borrower credit for the appraisal being less is not an acceptable changed circumstance.

Question 28 – On a zero cost home equity loan, are you required to redisclose because of adding escrow?

• Answer – We recommend issuing a new GFE when there are any changes to the loan.

Question 29 – Is Safe Harbor on all loans or just TPO?

• Answer – It’s our understanding the Safe Harbor is only for TPO loans.

Question 30 – If you put a policy in place requiring an updated credit report be obtained prior to closing for the purpose of QC, do you then have to update the ratios, DU, etc. for underwriting purposes if additional credit has been extended?

• Answer – Possibly. Please refer to Fannie Mae Lender Letter SEL-2010-11. In the letter, it states if you discover additional debts or lower income and DTI to exceed 45% or an increase over 3%.

Mortgage Compliance Advisors offers a free webinar every month. Visit www.MortgageComplianceAdvisors.com to register for next month’s webinar or to learn more about how MCA can serve all your compliance needs.


(Mortgage Compliance Advisors, LLC (MCA) makes reasonable efforts to ensure the accuracy of the answers. MCA makes no express or implied warranty of any kind respecting the information presented and assumes no responsibility for errors or omissions. This online chat is not legal advice and should not be used as a substitute for proper professional or legal advice.)

LO Compensation Rule is Now in Effect

On Tuesday, April 5, the US Court of Appeals for the District of Columbia ruled against a requested stay of implementation of the Loan Originator Compensation rule. The National Association of Mortgage Brokers (NAMB) and the National Association of Independent Housing Professionals (NAIHP) had filed suit to stop the implementation of the rule. Three circuit-court judges ordered the motions be denied on the grounds that NAMB and the NAIHP did not satisfy “the stringent standards required for a stay pending appeal.” The original effective date of April 1, 2011 was delayed, but the rule became immediately effective on April 5, when the Appellate Court denied the request.

To help you comply, MCA is now offering three different LO Compensation Policy templates for wholesale lenders, brokers, and retail correspondents. Depending on the volume of requests, we can generally complete your policy within 48 hours. Visit our website to learn more about our LO Compensation Policy or call 877-250-5243.


HUD Issues Guidance on GFE Completion in Response to the LO Compensation Rule

On March 19, HUD issued its quarterly issue of RESPA Roundup. In this issue, HUD clarifies RESPA requirements related to proper disclosure on the GFE and HUD-1 in relation to the Federal Reserve’s Loan Originator Compensation Rule. MCA encourages you to review the HUD guidance on how to properly complete the GFE and HUD-1 now that the LO Comp rule is in effect. Visit HUD.gov.

The April 1^st deadline is fast approaching for the Federal Reserve’s Final Rule regarding loan originator compensation and steering. There has been a lot of talk and confusion about how to compensate after the effective date. Furthermore, various investors and agencies may require to see your written LO Compensation Policy.

To help you comply, we are pleased to announce that we are now offering a Loan Originator Compensation Policy. We offer three different policies to fit your specific organization type:

• Wholesale lender
• Broker
• Retail correspondent

We can send you an LO Compensation Policy within 48 hours of when you order it. Learn more about our Loan Originator Compensation Policy or Contact Us to get started. 877-250-5243

Mar 21 – Get the recording of the Fed’s recent LO Comp webinar. Click here

Mar 21 – Check out HUD’s RESPA Roundup for March, including RESPA guidance related to LO Compensation. Visit HUD.gov

Mar 16 – Federal Reserve posts slides for its free LO compensation webinar tomorrow. Visit PhiladelphiaFed.org

Mar 8 – Register for the Federal Reserve’s free LO Compensation webinar on March 17. Register here