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:
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Enforce compliance to the LO Compensation paid-by rule
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Display a warning when compensation fields are not compliant
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Do not enforce compliance or display a warning
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Treat seller-paid broker compensation as borrower-paid or paid by a third party
To Configure the LO Compensation Rule:
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On the menu bar, click Encompass, and then click Settings.
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On the left panel, click Business Rules, and then click LO Compensation Rule.
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Using the Select Control Option dropdown list, select how strictly you want to enforce the LO Compensation Rule.
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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.
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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.
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Every field in the list is selected by default. This means each field is subject to the rule.
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If you do not want a field to be subject to the rule, clear the field’s checkbox.
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When the rule is enforced, the Broker Fees field and Broker Compensation field are always subject to the rule. This setting cannot be changed.
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To enable seller-paid fees to be paid as borrower-paid, select Borrower for the Treat seller-paid broker compensation as option.
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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.
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When finished, click the Save icon.