Many firms have asked me about the rules concerning the pay of loan officer assistants (LOA). These are typically unlicensed employees helping loan officers close loans. Historically lenders would have these LOAs paid by the loan officer out of their commissions. For many reasons, lenders should abandon such practices, institutionalize the position, and place strict limitations on its functions.
To begin, many state labor laws would prohibit forcing or permitting an employee from having to pay for an assistant to perform their job. Additionally, such practices can lead to serious IRS problems for all parties concerned if proper taxes are not withheld. In addition, an employer who has knowledge of such a relationship will ultimately be liable if a dispute arises between the loan officer and LOA.
Moreover, there are serious RESPA problems depending upon how a loan officer is paying the LOA. Of course, the lender will be held accountable even if it has no involvement in structuring the compensation for the LOA.
An additional problem for lenders is the role of the LOA. If they are actively talking to customers, strict guidelines must be followed to ensure no "origination" activities are undertaken by the LOA and that the LOA is in compliance with all federal lending and advertising laws. This is especially true if the LOA is unlicensed.
The bottom line is that LOAs must, moving forward, be employees of the lender under the full control of the lender in regard to pay, duties, etc. Lenders can still structure compensation so that the loan officer ultimately bears the cost of the LOA (e.g., by recalculating the basis points payable to account for the cost of the LOA's salary). However, the "old" way of doing things simply creates far too much risk in this new era of compliance. As such, lenders should take care to adjust their practices concerning the hiring, compensation, and control of loan officer assistants.