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feature W hen regulatory plans regarding loan officer compensation were released more than two years ago, the proposed rules were met with industry-wide criticism. Since that time, lenders have faced significant difficulties recruiting and training originators while absorbing additional costs brought on by the burden of adaptation. Despite blowback from the marketplace, the rule known as "LO comp" was implemented at the end of January, and mortgage professionals are speaking out on the preparation methods and compliance strategies that are meeting the challenge effectively. In the Rearview A s part of the encompassing Dodd-Frank legislation, loan originator compensation was restricted through rules set by the Consumer Financial Protection Bureau (CFPB) as part of the Dodd-Frank legislation. This compensation ruling marked a sharp departure from the practice of lenders being allowed to structure payment models that could reward bonuses for some originators (e.g., surpassing a total loan threshold or having a certain level of experience), but not for everyone. These tiered compensation systems had been common with the idea of rewarding the top producers. The concern among regulators that led to the compensation ruling was that the differences in payments may have led to some originators pushing borrowers into inappropriate loans in order to earn higher commissions. The FDIC outlined such concerns in 2010. While the rules for the CFPB changes didn't officially go into effect until January 21, the de facto rules have been in place since the CFPB's bulletin of April 2, 2011, which said: "Subject to certain narrow restrictions, the compensation rules that no loan originator may receive (and no person may apply to a loan originator) directly or indirectly compensation that is based on any terms or conditions of a mortgage transaction." earns must be disclosed in the loan documents at the time of the rate lock. In August 2012, the CFPB issued proposed rules for benefit plan contributions. Originators can receive contributions to a qualified defined benefit play as long as the contributions aren't based on the originator's individual transactions. Individual transactions also cannot be used as the basis for contributions to non-qualified plans; those contributions are further restricted to originators who make five or fewer transactions or who contribute less than a specified percentage (which had yet to be determined) to the lender's revenue. Though there has been plenty of pushback from mortgage industry groups since the initial CFPB bulletin, there have been "Some make a little more and some make less money. The days of a loan originator closing a very small number of loans and making $100,000 a year are gone. If a loan originator wants to make seven figures, they are going to earn it." such change involves compensation schedules for lenders, according to Eddy Perez, president of Atlanta-based Equity Loans, LLC. Equity, for example, had to scrap its previous compensation schedule that called for different basis point splits depending on an originator's production—the more the production, the higher the split. New originators started with a 25-basis-point split that could eventually go up to 60 basis points. The idea was the more productive originators—the ones making the most for the company—would earn the most money. There were also differences for those who originated their own mortgages and for those who simply worked off the leads of others. With the new rules, however, such differential payment within a company is no longer permitted. Even with the changes, the actual pay to some of the top producers is largely unchanged, according to Perez and Zugheri. "Our loan originators are within 10 percent of what they had made prior to the loan officer compensation changes," Zugheri said. "Some make a little more and some make less money. The days of a loan originator closing a very small number of loans and making $100,000 a year are gone. If a loan originator wants to make seven figures, they are going to earn it." —David Zugheri, Envoy Mortgage "My thought is that the industry has generally accepted the manner in which loan originators are compensated, and it's here to stay," said David Zugheri, co-founder of Envoy Mortgage in Houston. It's an attitude held by several others in the industry, though there were some holdouts expecting a change in the final rules. The term "compensation" itself is very broadly defined. It includes salaries, commissions, and annual or periodic bonuses. The compensation that an originator no real changes. Although no modifications were expected before the ink dried on the final rules, there might be some minor ones on a few related matters affecting the payments of upfront points and the availability of nopoint, no-fee mortgages. Permission to Pay A s a result of the de facto rules, lenders have seen several changes in the business. One Production and Adaptation T he new rules also make it more difficult to close a loan, points out Brian Lynch, CEO of Advantage Systems in Irvine, California. Under previous rules, a loan originator had the option to reduce his or her commission in order to get a deal done. While that is technically still possible, such a change now means re-qualifying the borrower and redoing the paperwork because the loan originator compensation must The M Report | 35