LO Compensation Rule

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The Truth In Lending rule that went into effect on April 1, 2011 changes the way compensation may be paid to the loan originator, which includes mortgage brokers and loan officers. The rule prohibits any person other than the borrower from paying compensation to a loan originator in a transaction where the borrower pays the originator directly. Use the LO Compensation Rule to control how Paid by fees are assigned in the 801 section of the 2010 or 2015 Itemization, 2010 HUD-1 Page 2, and Section 32 HOEPA input forms and prevent any person other than the borrower from paying the loan originator.

Based on your company policy, you can select from four options to determine how the LO Compensation Rule is enforced:

  • Enforce compliance to the LO Compensation paid-by rule

  • Display a warning when compensation fields are not compliant

  • Do not enforce compliance or display a warning

  • Treat seller-paid broker compensation as borrower-paid or paid by a third party

To Configure the LO Compensation Rule:

  1. On the menu bar, click Encompass, and then click Settings.

  2. On the left panel, click Business Rules, and then click LO Compensation Rule.

  3. Using the Select Control Option dropdown list, select how strictly you want to enforce the LO Compensation Rule.

    ClosedEnforce compliance to the LO Compensation paid-by rule

    When this option is selected, users are prevented from designating different fees in section 801 that are being paid to the broker as Paid by Borrower and Paid by Lender (or someone else other than the borrower). In other words, if one compensation fee being paid to the broker is being paid by the borrower, then all other compensation fees must be paid by the borrower as well. Or, if one of the fees is being paid by someone other than the borrower, then all other compensation fees paid to the broker must be paid by someone other than the borrower as well.

    • The LO Compensation Violation message displays any time the user violates the new loan originator compensation requirements by indicating that different fees will be paid to the broker by both the borrower and someone else other than the borrower. In order to close the message and proceed with the loan, the user must select Make all Paid by Borrower to set each fee as Paid by the Borrower or Make all Paid by 3rd Party to set each fee as Paid by Lender (or someone else other than the borrower).

    ClosedDisplay warning when all compensation fields are not compliant

    When this option is selected, the LO Compensation Violation message displays any time the user designates different fees in section 801 as Paid by Borrower and Paid by Lender (or someone else other than the borrower), warning them that the originator compensation requirements have been violated. The user can choose to set each fee as Paid by the Borrower, set each fee as Paid by Lender (or someone else other than the borrower), or they can select Take No Action and proceed with the loan despite the violation.

    ClosedDo not enforce compliance or display a warning

    When this option is selected, users are not prevented from (or warned against) designating different fees in section 801 as Paid by Borrower and Paid by Lender (or someone else other than the borrower). The LO Compensation Violation message will not display at any time, regardless of how fees are being paid to the broker.

  4. Select the fields on the 2010 or 2015 Itemization, 2010 HUD-1 Page 2, and Section 32 HOEPA input forms that will be subject to the rule.

    • The fields listed here represent every fee field in section 801 of the 2010 and 2015 Itemization, 2010 HUD-1 Page 2, and Section 32 HOEPA input forms.

    • Every field in the list is selected by default. This means each field is subject to the rule.

    • If you do not want a field to be subject to the rule, clear the field’s checkbox.

    • When the rule is enforced, the Broker Fees field and Broker Compensation field are always subject to the rule. This setting cannot be changed.

  5. To enable seller-paid fees to be paid as borrower-paid, select Borrower for the Treat seller-paid broker compensation as option.

    • With Borrower selected, users may enter loan originator (broker) compensation fees as being paid by the seller or the borrower (or both) without triggering an LO Compensation Violation message.

  6. When finished, click the Save icon.