© Rushmore Loan Management Services LLC 2013. All rights reserved.

Updated: May 2013

Loan Originator Compensation

Presented by Rushmore Home Loans

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The Consumer Financial Protection Bureau (“CFPB”) issued amendments to the existing Loan Originator Compensation Rule (“Amendments”) on January 20, 2013.

The Amendments implement Dodd-Frank’s statutory mandates related to loan originator compensation and qualification.

The Amendments are generally effective January 10, 2014, except for the provisions related to mandatory arbitration and single premium credit insurance, which become effective June 1, 2013.

Overview

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The Amendments:

Continue the prohibition against basing a loan originator’s compensation on any of the mortgage transaction’s terms or conditions, except for loan amount.

Continue the prohibition on dual compensation, i.e., receiving compensation directly from both the borrower and any other party.

Provide for an exemption from a Dodd-Frank provision which would have prohibited a borrower from paying upfront points and fees on transactions where loan originator compensation is paid by a person other than the borrower.

Implement certain loan originator qualification and identification requirements. Prohibit the inclusion mandatory arbitration clauses and financing single premium

credit insurance. Extend recordkeeping requirements for loan originators.

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A Loan Originator generally means “a person who, in expectation of direct or indirect compensation or other monetary gain or for direct or indirect compensation or other monetary gain, performs any of the following activities:

– takes an application, – offers, arranges, assists a borrower in obtaining or applying to obtain, negotiates, or

otherwise obtains or – makes an extension of consumer credit for another person; or – through advertising or other means of communication represents to the public that such

person can or will perform any of these activities.”

Loan Originator does not include, among other things: – persons that perform purely administrative or clerical tasks– Certain seller financers– Servicers or their employees, agents and contractors who offer or negotiate terms for

purposes of loss mitigation on existing mortgages.

Definition of a “Loan Originator”

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General Rule:

In connection with a consumer credit transaction secured by a dwelling, no loan originator may receive and no person may pay to a loan originator, directly or indirectly, compensation in an amount that is based on a term of a transaction, the terms of multiple transactions by an individual loan originator, or the terms of multiple transactions by multiple individual loan originators.

Prohibition on Compensation Based on Loan Terms

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Proxies for Term of a Transaction:

To prevent evasion, the Amendments prohibit compensation that is based in whole or in part on a factor that is a proxy for a term of a transaction. The Amendments clarify that a factor that is not itself a term of a transaction is a proxy for a term of the transaction if:

– The factor consistently varies with that term over a significant number of transactions; and

– The loan originator has the ability, directly or indirectly, to add, drop, or change the factor in originating the transaction.

For the foregoing purposes, a “term of the transaction” is any right or obligation of the parties to a credit transaction.

Significantly, however, the amount of credit extended is not a term of a transaction or a proxy for a term of a transaction, provided that 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.

Prohibition on Compensation Based on Loan Terms

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To prevent incentives to “up-charge” consumers on their loans, the Amendments generally prohibit loan originator compensation based upon the profitability of a transaction or a pool of transactions. However, the Amendments provide for exceptions to this general for various types of retirement and profit-sharing plans. For instance, mortgage-related business profits can be used to:

Make contributions to certain tax-advantages retirement plans, such as a 401(k) plan or an IRA; or

To make bonuses and contributions to other plans that do not exceed 10% of the individual loan originator’s total compensation.

Prohibition on Compensation Based on Loan Terms

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To prevent evasion, the Amendments also generally prohibit loan originator compensation from being reduced to offset the cost of a change in transaction terms, i.e., a pricing concession.

However, the Amendments permit a loan originator to reduce their compensation to defray certain unexpected increases in estimated settlement costs.

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As before, under the Amendments, if any loan originator receives compensation directly from a borrower in a consumer credit transaction secured by a dwelling:

– No loan originator may receive compensation, directly or indirectly, from any person other than the borrower in connection with the transaction; and

– No person who knows or has reason to know of the borrower-paid compensation to the loan originator (other than the borrower) may pay any compensation to a loan originator, directly or indirectly, in connection with the transaction.

Note that compensation received directly from a borrower includes payments to a loan originator made pursuant to an agreement between the borrower and a person other than the lender or its affiliates, under which such other person agrees to provide funds toward the borrower’s costs of the transaction (including loan originator compensation).

Prohibition on Dual Compensation

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Loan Originator Organization Exception

If a loan originator organization receives compensation directly from a borrower in connection with a transaction, the loan originator organization may pay compensation to an individual loan originator, and the individual loan originator may receive compensation from the loan originator organization.

– In other words, under the Amendments, a loan originator organization may receive compensation from a borrower, and may still pay its individual loan originator a commission based on that transaction, so long as the commission is not based on any term of the transaction (other than a fixed percentage of the amount of the loan).

Prohibition on Dual Compensation

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Third Party Charge Exception

“Compensation” does not include amounts the loan originator receives as payment for bona fide and reasonable charges, such as credit reports, where those amounts are passed on to a third party that is not the lender, its affiliate, or the affiliate of the loan originator.

Therefore, in either a Lender Paid or Borrower Paid scenario, payments received by a loan originator for bona fide and reasonable third party charges, that are not retained by the loan originator, will not violate the Dual Compensation rules.

Prohibition on Dual Compensation

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Dodd-Frank contains a provisions that would have generally prohibited consumers from paying upfront points or fees on transactions where the loan originator compensation is paid by a person other than the consumer. However, Dodd-Frank permits CFPB to waive or create exemptions if doing so would be in the interests of consumers and in the public interest. CFPB used its exemption authority to issue a complete exemption to the prohibition on upfront points and fees, pending further study.

As a result, under the Amendments, a loan originator may receive from a person other than the borrower an origination fee or charge, and a person other than the borrower may pay a loan originator an origination fee or charge, as long as the loan originator does not receive any compensation directly from the borrower, regardless of whether the borrower makes any upfront payments of discount points, origination points, or fees.

No Prohibition on Upfront Fees

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Rushmore’s goal is to develop a regulatory compliant program that fairly and properly compensates our brokers. Under the Amendments, Rushmore Brokers will be able to:

Receive compensation from either the borrower or the Lender, NOT both.

Receive compensation based on a fixed percentage of the loan amount.

Predetermine the level of Lender paid compensation received from Rushmore on all loans, regardless of product, type, or loan terms.

Adjust their lender Paid compensation level monthly.

Choose among nine (9) compensation levels which best meet their business needs ranging from:

Broker Compensation

• A – 1.00• B – 1.25• C – 1.50

• D – 1.75• E – 2.00• F – 2.25

• G – 2.50• H – 2.75• I – 3.00

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Broker Compensation Options

Brokers have the option of negotiating compensation directly with the Borrower or with the Lender on a loan-by-loan basis.

Borrower Paid– The fee paid to the broker is negotiated directly between the borrower and the broker.

Lender Paid– The broker receives compensation directly from the lender at a pre-determined level that can be adjusted

on a monthly basis (formerly referred to as YSP).

Broker Compensation

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Borrower Paid Compensation

Borrower paid compensation requires that all broker compensation, including origination and processing fees be paid directly by the Borrower. No compensation will be paid to the broker from Rushmore.

The broker will negotiate with the borrower to determine the amount of compensation that will be paid.

All loan features and product price adjustments will be applied to the borrower’s premium credit, if applicable.

The borrower must pay the broker in cash or by financing the amount into the loan principal.

The premium credit given to the borrower based on the interest rate selected may not be used to pay the broker compensation, but may be used for bona fide third-party closing costs.

Broker Compensation

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Borrower Paid Compensation (cont.)

The amount of compensation may vary on a loan-by-loan basis, but it must remain within Rushmore’s Fair and Responsible lending parameters.

Generally, a broker may not give a credit to cover other closing costs under the Borrower Paid compensation model. The broker may only reduce its compensation or provide a credit to cover increased closing costs where the reason for the increase was unforeseen, based on the best information reasonably available, at the time the estimate of closing costs was made.

Seller contribution can be utilized to pay negotiated broker compensation.

Broker Compensation

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Lender Paid Compensation

Lender Paid compensation requires that the broker compensation come from the lender. Compensation must be negotiated between the lender and broker prior to the submission of any loans.

The amount of compensation paid to the broker cannot vary based on loan terms and conditions or any proxy for those loan terms and conditions.

– Terms and Conditions: include interest rates, annual percentage rate, loan-to-value ratio, or the existence of a prepayment penalty or proxies for terms and conditions, such as credit scores.

Generally, a broker may not give a credit to cover other closing costs under the Borrower Paid compensation model. The broker may only reduce its compensation or provide a credit to cover increased closing costs where the reason for the increase was unforeseen, based on the best information reasonably available, at the time the estimate of closing costs was made. All other third-party costs must be paid by the borrower in cash, financed into the loan amount, or via a credit for premium pricing based on the interest rate chosen.

All loan feature and product price adjustments will be applied to the borrower premium credit.

Brokers may choose among seven (9) Lender Paid Compensation levels ranging from:

Broker Compensation

• A – 1.00• B – 1.25• C – 1.50

• D – 1.75• E – 2.00• F – 2.25

• G – 2.50• H – 2.75• I – 3.00

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Lender Paid Compensation (cont.)

The level of compensation paid by Rushmore will remain constant for one month at a time.– Brokers have the opportunity to modify the compensation monthly provided it is within the allowable

timeframe.

In general, under the Lender paid compensation model, the broker cannot collect any fees or compensation directly from the borrower.

The broker cannot pay its individual loan officers any compensation in connection with a loan transaction.

Broker Compensation

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No Mandatory Arbitration Clauses

The following terms are prohibited, effective June 1, 2013:

Arbitration: A contract or other agreement for a consumer credit transaction secured by a dwelling (including a home equity line of credit secured by the borrower’s principal dwelling) may not include terms that require arbitration or any other non-judicial procedure to resolve any controversy or settle any claims arising out of the transaction. This prohibition does not limit a borrower and lender or any assignee from agreeing, after a dispute or claim under the transaction arises, to settle or use arbitration or other non-judicial procedure to resolve that dispute or claim.

No waivers of Federal statutory causes of action: A contract or other agreement relating to a consumer credit transaction secured by a dwelling (including a home equity line of credit secured by the borrower’s principal dwelling) may not be applied or interpreted to bar a borrower from bringing a claim in court pursuant to any provision of law for damages or other relief in connection with any alleged violation of any Federal law. This prohibition does not limit a borrower and lender or any assignee from agreeing, after a dispute or claim under the transaction arises, to settle or use arbitration or other non-judicial procedure to resolve that dispute or claim.

Prohibited Provisions

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No Single-Premium Credit Insurance

Effective June 1, 2013, a lender may not finance, directly or indirectly, any premiums or fees for credit insurance in connection with a consumer credit transaction secured by a dwelling (including a home equity line of credit secured by the borrower’s principal dwelling). This prohibition does not apply to credit insurance for which premiums or fees are calculated and paid in full on a monthly basis.

Prohibited Provisions

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Loan Originator Qualifications

Loan originators must comply with all applicable State law requirements for legal existence and foreign qualification.

Loan originator organizations must ensure each individual loan originator working for the Broker is licensed or registered to the extent required under the SAFE Act, its implement regulations, and State SAFE Act implementing law, before the individual acts as a loan originator in a consumer credit transaction secured by a dwelling.

Whenever loan documents are provided to a borrower or presented to a borrower for signature, the loan originator organizations must ensure that it includes its name and NMLS ID number, and the name and NMLS ID of the individual loan originator with primary responsibility for the origination, on all:

– Credit applications– Notes or loan contracts, and – Security instruments.

Miscellaneous

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Anti-Steering Provisions

Loan originators are prohibited from “steering” borrowers to loan products that generate higher levels of compensation for the originator, unless the recommended product is in the borrower’s interest.

Safe Harbor Provision The steering prohibition will not be violated if the loan originator obtains loan options from a significant number of

lenders with which the originator regularly does business (at least 3) and, for each type of transaction in which the borrower expressed an interest, presents the borrower with loan options that include:

– The loan with the lowest interest rate– The loan with the lowest interest rate without “risky” features, including negative amortization, a

prepayment penalty, interest-only payments, a balloon payment in the first 7 years, a demand feature, shared equity, or shared appreciation; and

– The loan with the lowest total dollar amount of discount points, origination points , or origination fees (or, if two or more loans have the same total dollar amount of discount points, origination points or origination fees, the loan with the lowest interest rate that has the lowest total dollar amount of discount points, origination points or origination fees).

To qualify under safe harbor, the loan originator must have a good faith belief that the loan options presented are transactions for which the borrower likely qualifies.

If any loan originator regularly does business with less than 3 lenders, the loan originator may still qualify for the safe harbor so long as it presents options from all such lenders.

Miscellaneous

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Anti-Steering Disclosure

The following applies to the Anti-Steering Disclosure:

Must be signed by the broker on lender paid option loans.– Must be PTD– Can be PTF on dry loans

Will be available on www.rushmorehl.com

Signed by borrower on lender paid option.– Signed at closing– Generated with closing documents

Miscellaneous

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Record Retention

Loan originator organizations must retain records sufficient to evidence:– All compensation received from lenders, borrowers, or any other persons– All compensation paid to any individual loan originators, and– The compensation agreement that governs each such receipt or payment.

These records must be maintained for a minimum of 3 years after the date of each such receipt or payment.

Miscellaneous

Scenarios

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1. Assume a loan originator organization receives compensation directly from either a borrower or lender. Further assume the loan originator organization uses average charge pricing in accordance with RESPA and, based on past average cost for credit reports, charges the borrower $25 for a credit report provided by a third party. If the charge for credit reports varies between $15 and $35, depending on the volume of reports ordered each month, and the borrower pays $25 but the cost for the credit report is later determined to be $15, is the $10 difference compensation to the loan originator organization from the borrower?

In this case, no. the difference retained by the loan originator organization is not compensation if the charge imposed on the borrower or collected from a person other than the borrower was bona fide and reasonable and also complies with State and other applicable law. If, however, the price of a credit report varied between $10 and $15, a $10 difference would be “compensation”.

2. Assume that three individual loan originators form a loan originator organization that is a limited liability company (LLC). The three individual loan originators are members of the LLC, and the LLC agreement governing the loan originator organization’s structure calls for regular distributions based on the members’ respective equity interests. Is the distribution of equity interests “compensation” under the compensation restrictions?

If the members’ respective equity interests are allocated based on the members’ terms of transactions, rather than according to their respective capital contributions, then distributions based on such equity interests are not bona fide and, thus, are compensation and subject to the restrictions.

Scenarios

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3. Assume a lender pays a loan originator a higher commission for transactions to be held by the lender in portfolio than for transactions sold by the lender into the secondary market. The lender holds in portfolio only extensions of credit that have a fixed interest rate and a five-year term with a final balloon payment. The lender sells into the secondary market all other extensions of credit, which typically have a higher fixed interest rate and a 30-year term. Is whether the lender holds a transaction in portfolio a factor that is a proxy for a term of a transaction?

Yes. Whether an extension of credit is held in portfolio or sold into the secondary market consistently varies with the interest rate and whether the credit has a five-year term or a 30-year term (terms of the transaction) over a significant number of transactions. Also, the loan originator has the ability to change the factor by, for example, advising the borrower to choose an extension of credit with a five-year term.

4. Assume a loan originator organization pays loan originators higher commissions for transactions secured by property in State A than in State B. For this loan originator organization, over a significant number of transactions, transactions in State B have substantially lower interest rates than transactions in State A. Is location of the property a proxy for a term of a transaction?

No. Although location may vary consistently with interest rate (a term of the transaction) the loan originator does not have any ability to influence whether the transaction is secured by property located in State A or State B.

Scenarios

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5. Assume that a lender pays a bonus to an individual loan originator out of a bonus pool established with reference to the lender’s profits and the profits are determined with reference to the lender’s revenue from origination of closed-end consumer credit transactions secured by a dwelling. Is this bonus “compensation based on the terms of a transaction”?

Yes. The rule encompasses compensation that directly or indirectly is based on the terms of a single transaction of a single individual loan originator, the terms of multiple transactions of that single individual loan originator, or the terms of transactions of multiple individual loan originators. Compensation to a loan originator that is based upon profits determined with reference to a mortgage-related business is considered compensation that is based on the terms of transactions of multiple individual loan originators.

6. Assume that an individual loan originator’s employment contract with a lender guarantees a quarterly bonus in a specified amount conditioned upon the individual loan originator meeting certain performance benchmarks (e.g., volume of originations monthly). Is this bonus “compensation based on the terms of a transaction”?

No. A bonus paid following the satisfaction of those contractual conditions is not directly or indirectly based on the terms of a transaction because the lender is obligated to pay the bonus, in the specified amount, regardless of the terms of transactions of the individual loan originator or multiple individual loan originators and the effect of those multiple terms of transactions on the lender’s profits.

Scenarios

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7. Assume that Loan Originator A receives a higher commission than Loan Originator B and that loans originated by Loan Originator A generally have higher interest rates than loans originated by Loan Originator B. Under these circumstances, may the two originators share in a pooled compensation arrangement?

No. The sharing of pooled compensation is prohibited among loan originators who originate transactions with different terms and who are compensated differently.

8. Assume that for calendar year 2013 a lender pays an individual loan originator compensation in the following amounts: $80,000 in commissions based on the individual loan originator’s performance and volume of loans generated during calendar year; and $10,000 in an employer contribution to a designated tax-advantaged defined contribution plan on behalf of the individual loan originator. The employer desires to pay the individual loan originator a year-end profit-related bonus of $10,000. The commissions are paid and employer contributions to the qualified plan are made during calendar year 2013, but the year-end bonus will be paid in January 2014. Is the year-end bonus subject to the 10% total compensation limit on non-deferred profits-based compensation plans? If subject to the limitation, is the year-end bonus permissible?

The time period for which the compensation is determined is the time period with respect to which the profits from which compensation is paid are calculated. It does not matter whether the compensation subject to the 10% limit and the total compensation are actually paid during that particular time period. For purposes of the 10% total compensation limit, the year-end bonus is counted as part of both the compensation subject to the 10% limit and the total compensation for calendar year 2013 even though it is not actually paid until 2014. Additionally, because the year-end bonus is $10,000, which is 10% of the loan originator’s $100,000 in total compensation (i.e. the sum of commissions, designated plan contribution, and projected bonus), it is permissible under the rules.

Scenarios

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9. Assume that a lender uses a calendar-year accounting period. If the lender pays an individual loan originator a bonus at the end of each quarter under a non-deferred profits-based compensation plan. Is the payment of each quarterly bonus subject to the 10% limit measured with respect to each quarter, as well as annually?

Yes. A company, business unit, or affiliate, as applicable, may pay compensation subject to the 10% limit during different time periods falling within its annual accounting period for keeping records and reporting income and expenses, which may be a calendar year or a fiscal year depending on the annual accounting period. In such instances, however, the 10% limit applies both as to each time period and cumulatively as to the annual accounting period. Here, the payment of each quarterly bonus is subject to the 10% limit measured with respect to each quarter. The lender can also pay an annual bonus under the non-deferred profits-based compensation plan that does not exceed the difference of 10% of the individual loan originator’s total compensation corresponding to the calendar year and the aggregate amount of quarterly bonuses.

10. Assume that during a given calendar year, individual loan originator A and individual loan originator B are each employed by a lender and paid $40,000 in salary, $44,000 in commissions, and other benefits that have a cash value of $1,000. The lender also contributes $5,000 to a designated tax advantaged defined contribution plan for each individual loan originator. Neither individual loan originator is paid any other form of compensation by the lender. In December of the calendar year, the lender rewards both individual loan originators for their performance during the calendar year out of a bonus pool established with reference to the profits of the mortgage origination business unit. Individual loan originator A is paid a $10,000 cash bonus, meaning that individual loan originator A’s total compensation is $100,000. Individual loan originator B is paid a $7,500 cash bonus and awarded a vacation package with a cash value of $3,000, meaning that individual loan originator B’s total compensation is $100,500. Are either of these situations permissible?

Individual loan originator A’s $10,000 bonus is permissible because the bonus would not constitute more than 10 percent of the individual loan originator A’s total compensation for the calendar year. The lender may not pay individual loan originator B the $7,500 bonus and award the vacation package, however, because the total value of the bonus and the vacation package would be $10,500, which is greater than 10 percent (10.45 percent) of individual loan originator B’s total compensation for the calendar year.

Scenarios

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11. Assume that, in a given calendar year, a loan originator organization pays an individual loan originator employee $40,000 in salary and $125,000 in commissions, and makes a contribution of $15,000 to the individual loan originator’s 401(k) plan. At the end of the year, the loan originator organization wishes to pay the individual loan originator a bonus based on a formula involving a number of performance metrics, to be paid out of a profit pool established at the level of the company but that is derived in part through the company’s mortgage originations. Assume that the loan originator organization derives revenues from sources other than in connection with consumer credit transactions secured by a dwelling. May the loan originator organization pay a performance bonus?

Yes, depending on certain conditions. In this example, the performance bonus would be directly or indirectly based on the terms of multiple individual loan originators’ transactions , because it is being funded out of a profit pool derived in part from mortgage originations. Thus, the bonus is permissible if it does not exceed 10 percent of the loan originator’s total compensation, which in this example consists of the individual loan originator’s salary, commissions, contribution to the 401(k) plan (if the loan originator organization elects to include the contribution in calculating total compensation), and the performance bonus. Therefore, if the loan originator organization elects to include the 401(k) contribution in total compensation for these purposes, the loan originator organization may pay the individual loan originator a performance bonus of up to $20,000 (i.e., 10 percent of $200,000 in total compensation); if the loan originator organization does not include the 401(k) contribution in calculating total compensation, the bonus may be up to $18,333.33.

Scenarios

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12. Assume that the compensation during a given calendar year of an individual loan originator employed by a lender consists of only salary, commissions, and benefits, and the individual loan originator does not participate in a designated defined contribution plan. Assume further that the lender uses a calendar-year accounting period. At the end of the calendar year, the lender pays the individual loan originator two bonuses: a “performance” bonus based on the individual loan originator’s aggregate loan volume for a calendar year that is paid out of a bonus pool determined with reference to the profitability of the mortgage origination business unit, and a year-end “holiday” bonus in the same amount to all company employees that is paid out of a company-wide bonus pool. What restrictions apply?

Because the performance bonus is paid out of a bonus pool that is determined with reference to the profitability of the mortgage origination business unit, it is compensation that is determined with reference to mortgage-related business profits, and the bonus is therefore subject to the 10-percent total compensation limit. If the company-wide bonus pool from which the “holiday” bonus is paid is derived in part from profits of the lender’s mortgage origination business unit, then the combination of the “holiday” bonus and the performance bonus are subject to the 10-percent total compensation limit. The “holiday” bonus is not subject to the 10-percent total compensation limit if the bonus pool is determined with reference only to the profits of business units other than the mortgage origination business unit, as determined in accordance with reasonable accounting principles. If the “performance” bonus and the “holiday” bonus in the aggregate do not exceed 10 percent of the individual loan originator’s total compensation, the bonuses may be paid without the necessity of determining from which bonus pool they were paid or whether they were determined with reference to the profits of the lender’s mortgage origination business unit.

Scenarios

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13. Assume a loan originator organization employs two individual loan originators during a given calendar year but only one of them (individual loan originator B) acts as a loan originator in the normal course of business, while the other (loan originator A) is called upon to do so only occasionally and regularly performs other duties. In January of the following calendar year, the loan originator organization formally determines the financial performance of its mortgage business for the prior calendar year. Based on that determination, the loan originator organization on February 1 decides to pay a bonus to the individual loan originators out of a company bonus pool. Assume that, between February 1 of the prior calendar year and January 31 of the current calendar year, loan originator A was the loan originator for eight transactions, and loan originator B was the loan originator for 15 transactions. May the loan originator organization pay each a bonus in this scenario?

The loan originator organization may award the bonus to loan originator A because loan originator A originated fewer than ten transaction during the preceding 12-month period, and mat award the bonus to loan originator B if it complies with the 10% total compensation limit.

Scenarios

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14. Assume that during the first six months of the year, a lender pays $3,000 to a particular loan originator for each loan delivered, regardless of the loan terms or conditions. After considering the volume of business produced by that originator, the lender could decide that as of July 1, it will pay $3,250 for each loan delivered by that particular originator, regardless of the loan terms or conditions. Have any violations occurred?

No. The restrictions on reducing loan originator compensation do not limit a credit or other person from periodically revising the compensation it agrees to pay a loan originator. However, the revised compensation arrangement must result in payments to the loan originator that are not based on the terms of a credit transaction. A lender or other person might periodically review factors such as loan performance, transaction volume, as well as current market conditions for originator compensation, and prospectively revise the compensation it agrees to pay to a loan originator. Here, because the determination was made based on transaction volume, no violation occurs even if the loans made by the lender after July 1 generally carry a higher interest rate than loans made before that date, to reflect the higher compensation.

15. Assume that a borrower agrees to lock an interest rate with a lender in connection with the financing of a purchase-money transaction. A title issue with the property being purchased delays closing by one week, which in turn causes the rate lock to expire. The borrower desires to re-lock the interest rate. May the loan originator agree to decrease its compensation to pa for all or part of the rate-lock extension fee?

Yes. Provided that the title issue was unforeseen, the loan originator may decrease the loan originator’s compensation to pay for all or part of the ratelock extension fee.

Scenarios

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16. Assume that when applying the tolerance requirements under the regulations implementing RESPA sections 4 and 5(c), there is a tolerance violation of $70 that must be cured. May the loan originator decrease its compensation to pay for all or part of the amount required to cure the tolerance violation?

Yes, provided the violation was unforeseen.

17. Assume that a non-lender seller (that is not the lender’s affiliate) has an agreement with the borrower to pay $1,000 of the borrower’s closing costs on a transaction. Does this $1,000 constitute “compensation” to the loan originator?

Yes. Any of the $1,000 paid by the non-lender seller to cover the borrower’ closing costs that are retained by the loan originator constitute direct compensation from the borrower, even if the agreement does not specify that some or all of the $1,000 must be used to compensate the loan originator. Note, however, payments in the transaction to the lender on behalf of the borrower by a person other than the lender or its affiliates are not payments to the loan originator that are received directly from the borrower.

Scenarios

Frequently Asked Questions

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1. A broker incorrectly completes Good Faith Estimate by omitting lender fees or inserting lender fees at less than actual amount. Because of RESPA tolerances, Good Faith Estimate may not be revised to reflect correct fees or amount of fees, may Rushmore deduct shortfall from individual loan originator or broker compensation?

No. A decrease in loan originator compensation to defray an increase in actual settlement costs over the cost disclosed in the GFE is only permitted where the increase occurs even though the estimate provided to the borrower was consistent with the best information reasonably available at the time of the estimate. Here, the increase was not unforeseen, the broker simply made a mistake in completing the GFE.

2. What about Discount points?

Under the Amendments, a loan originator may receive from a person other than the borrower an origination fee or charge, and a person other than the borrower may pay a mortgage originator an origination fee or charge, as long as the loan originator does not receive any compensation directly from the borrower, regardless of whether the borrower makes any upfront payments of discount points, origination points, or fees.

F A Q’s

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3. How often can the broker change the compensation level earned on the Lender Paid Model?

Brokers will be able to adjust their lender paid compensation tier on a monthly basis.

4. What “defines” allowable third party fees that can be paid for by premium pricing in a Lender paid transaction?

A “third party” fee is a bona fide charge from an independent settlement service provider. “Compensation” does not include amounts the loan originator receives as payment for bona fide and reasonable charges, such as credit reports, where those amounts are passed on to a third party that is not the lender, its affiliate, or the affiliate of the loan originator. Therefore, amounts received for third party fees do not trigger Dual Compensation concerns.

5. Can the premium be applied towards escrow set up? For example, if the borrower has three months of escrow to put away, can it be used for that?

Yes, any available premium can be utilized to establish the initial escrow account.

F A Q’s

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6. Will any “pricing” changes only affect the Borrower’s “premium/discount”? For example, if the broker needs a lock extension, will this affect only the Borrower and not the Broker?

No. In either the Borrower Paid plan or Lender Paid plan, the loan originator generally may not decrease its compensation to pay for all or part of the ratelock extension fee. However, the loan originator may decrease its compensation to cover the fee if the reason for the ratelock extension was unforeseen.

7. Can compensation change during processing? For example, if a Broker chooses Lender paid on a loan, then decides on changing to Borrower paid, is that allowed?

Yes, a borrower can change the compensation option during the processing of the loan. Changing compensation models is an allowable changed circumstance under RESPA, but it is not permissible to increase Block 1 of GFE (Origination charge).

If changing to the Lender Paid plan, Rushmore must pay the Broker’s negotiated compensation amount, even if this causes a cure in Block 1 of the GFE.

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8. As a broker, am I able to set up different compensation agreements with different Lenders?

Yes, a broker can receive different amounts of compensation from different lenders, each payment received from a specific Lender must be consistent with their agreement.

9. Can a broker use excess premium to pay a processing fee if it is “outsourced”?

Yes. Payments to the broker for bona fide 3rd party fees are not “compensation,” whether they are paid by the borrower or the lender, where those amounts are passed on to a third party that is not the lender, its affiliate, or the affiliate of the broker.

10. If a broker has multiple branches, will the compensation be determined by the main office with all branches complying, or will each Rushmore approved branch determine which tier they will use?

Compensation will be consistent for all branches and determined by the main office.

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11. What happens when a broker has forgotten to disclose the owner’s title insurance on the GFE? Is this handled the same way for Lender paid and borrower paid methods of compensation? Does the broker still pay? How do we show it on the lender paid version?

In either the Borrower Paid plan or Lender Paid plan, the loan originator generally may not decrease its compensation or provide a credit to cure a tolerance violation. The broker or loan originator may only decrease its compensation to defray the cost of an unforeseen actual settlement cost not disclosed to the borrower. Here, if the broker simply forgot to disclose the title insurance cost, the increased cost was not unforeseen, and may not be cured by reducing the broker’s compensation or providing a credit.

12. Does this regulation affect how Rushmore’s commitment fee is disclosed?

No, Rushmore is a lender not a loan originator under this regulation. Therefore, our commitment fee may still be collected directly from the Borrower, even if Rushmore is paying the Broker compensation under the Lender Paid model.

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13. What happens if there is excess Rushmore premium owed to the borrower?

If there is sufficient excess premium to lower the rate, then the rate is to be lowered. If not, then this premium should be credited to the borrower as a principal curtailment per Rushmore established policy on principal curtailments.

14. Is Yield Spread Premium still called YSP?

No, it will no longer be referred to as Yield Spread Premium (YSP). The premium (or cost) noted on our rate sheets for a specific interest rate will be utilized by the borrower to pay for third party fees along with loan feature and product pricing adjustments.

Any credit given from Rushmore to the Broker is not a YSP. It is simply the broker’s compensation.

15. May a Broker collect an underwriting or processing fee under the Lender Paid model?

No, if the broker is being compensated by Rushmore, then it may not charge any fee directly to the borrower. Outsourced processing must be done by an independent third party, with no broker ownership.

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16. Does the Lender Paid compensation percentage have to match the Borrower Paid compensation percentage?

No.

17. Can the borrower change from Lender Paid to Borrower Paid?

Yes. The borrower can change from one compensation plan to the other. Rushmore would require that the borrower acknowledge this change in writing.

18. What happens if rate lock expires and the percentage changes on Lender Paid?

Any cost incurred on the extension of the lock will have to be paid by the borrower, unless the reason for the lock expiring was unforeseen. The loan originator is not prohibited from decreasing their compensation or providing a credit to defray the cost of an unforeseen increase in an actual settlement cost. The loan originator may decrease their compensation to pay for all or part of the rate-lock extension fee, provided the reason for the rate lock expiring was unforeseen.

19. What happens if the broker is willing to take a lower percent?

In either the Borrower Paid plan or Lender Paid plan, the broker generally may not decrease its compensation or provide a credit to pay for the borrower’s closing costs.

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20. What is the maximum Lender Paid compensation?

Currently, the maximum Lender Paid compensation offered by Rushmore is 3.00%.

21. How does this affect retail loan officers and their compensation? Can

they flip between hourly and salary?

The broker is required to have a written compensation plan for each of his/her individual loan originators that comply with Regulation Z. Whether or not compensation is paid on an hourly or salaried basis is a business decision that each broker will have to establish. Rushmore recommends brokers discuss this with their legal representative. Individual loan originator employees of a broker may now be paid commission, so long as it is not based on the terms of a transaction.

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22. Where is the Anti-Steering form available?

The certification to attest compliance with anti-steering (Safe Harbor) is currently located on www.rushmorehl.com.

23. It appears that there are several examples where Rushmore will have to bear the cost of

certain items when fees change, how will this be tracked?

Provided the initial GFE is complete in its depiction of the fees associated with the loan, Rushmore will have no cost exposure. Costs would be incurred if the initial binding GFE is accepted and it is incorrect or under disclosed. GFE’s with inaccurate or under disclosed fees will be rejected.

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24. Will we have a floor and ceiling to the compensation as other Lenders do?

No, only the levels indicated on the Lender Paid Compensation Election Form apply. 25. Can a broker pay for the credit report then collect the fee from the Borrower?

Yes, in some circumstances. Where the Broker receives payment for bona fide and reasonable third-party charges, such as credit reports, and where those amounts are passed on to a third party that is not the creditor, its affiliate, or the affiliate of the Broker, the payment received is not considered “compensation,” and does not violate any of the dual-compensation rules. The same applies where the broker pays a third party fee and then is reimbursed by the borrower.

26. What happens if there is an error on the GFE? Can a broker correct the GFE?

In either the Borrower Paid plan or Lender Paid plan, the loan originator generally may not decrease its compensation or provide a credit to cure a tolerance violation. The loan originator may only decrease its compensation to defray the cost of an unforeseen actual settlement cost not disclosed to the borrower. Here, if the broker simply forgot to disclose the title insurance cost, the increased cost was not unforeseen, and may not be cured by reducing the broker’s compensation or providing a credit.

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27. How will “special” pricing affect the Broker’s compensation?

Under either the Borrower or Lender Paid compensation plans, the amount of incentive will be credited to the Borrower.

28. Can a broker pay a hourly wage amount that would exceed the individual loan originator’s individual agreement?

It is not Rushmore’s position to advise Brokers. Brokers should seek advice from their legal representative.

29. Is an amount paid to a non-affiliated processor considered a legitimate 3rd party fee?

Yes, Rushmore will require an invoice. 30. Is the Rushmore underwriting fee considered a 3rd party fee?

No.

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Sample Rate Sheet

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Sample Rate Sheet