One of the most misunderstood and misapplied areas concerning LO compensation involves the application of varying compensation related to the source of the business. In its simplest form, the concept is that a company should be able to pay a loan officer more for a self-originated deal than it pays a loan officer for developing a loan through a lead purchased by the company. The compensation laws recognize that to the extent a company has to incur an expense to originate deals and would like to incentivize loan officers to self-generate business, there is a legitimate reason to differ compensation.
However, many companies are misapplying the source-of-the-loan variance in a manner that will likely lead to a conclusion that the LO comp rules are being violated because the source-of-the-loan justification is a mere proxy for loan terms. Consider a loan originated through a website, where a lender offers their loan at a reduced APR. For loans originated through this source, the lender pays LOs 50 bps less than their standard. Hence, a situation exists where the terms of the loan literally correspond to different compensation plans. Notwithstanding that the difference is attributable to a different source, it also corresponds to a unique term and thus could easily be viewed as a change in compensation based upon loan terms.
Obviously, if the difference in compensation were not tied specifically to that particular source it would be difficult to interpret the compensation change as a proxy. For example if the company obtain leads from numerous sources and only paid differently on self-generated business, it would be unlikely to be considered to have engaged in creating a proxy for loan terms. Similarly, if the difference in compensation correlated to the out-of-pocket costs of the advertisement (i.e. $40 compensation subtraction for a $40 lead), that too would likely fall within a permissible change in compensation.
The point is simply to highlight that variances in a loan officer's compensation from deal to deal must be evaluated not only by the technical rules, but also by an overarching concern that a company—while technically compliant–has set up policies that create changes to compensation based upon proxies for loan terms. Given the damages and penalties for engaging in such actions, care must be taken to ensure that, inadvertently, a proxy for loan terms does not exist.
