Regulation Z decides how a loan officer can be compensated, and it is one of the most enforced rules in mortgage lending. The core is one idea: your pay cannot depend on the terms of the loans you make. Everything else in the rule protects that idea from workarounds.
No loan originator may receive, and no one may pay a loan originator, compensation based on a term of a transaction: the rate, the fees, the product, or any other right or obligation of the parties. That also covers terms across multiple transactions by one or several loan officers.
It reaches proxies too. A factor that is not itself a loan term counts as one if it consistently varies with a term over many transactions and the loan officer can add, drop or change it.
A fixed percentage of the amount of credit extended, with or without a minimum or maximum dollar amount.
More pay for a higher interest rate, a particular product, or added fees.
Contributions to qualified plans such as a 401(k) are allowed, as long as a defined contribution is not based on your loans' terms.
Allowed if not based on your loans' terms and either the bonus is no more than 10 percent of your total pay for the period, or you originated 10 or fewer loans in the prior 12 months.
If a borrower pays the loan originator directly, the originator generally cannot also be paid by anyone else on that loan.
A loan originator may not steer a borrower into a loan because it pays the originator more, unless the loan is in the borrower's interest. The rule's safe harbor asks the originator to get options from a significant number of the lenders it regularly works with and, for each type of loan the borrower wants, present the lowest-rate option, the lowest-rate option without risky features, and the option with the lowest total points and fees.
That safe harbor describes what a good broker does anyway: shop, then show. It is one reason the manual makes the case for brokering. The licensing floor that comes first is on getting licensed.
Federal minimums from Regulation Z, 12 CFR 1026.36(d) Prohibited payments to loan originators and (e) Prohibition on steering. States can and do require more; check your state regulator through NMLS. Not legal advice.
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