Currently, when a LO sells owner’s title on a loan, the bank provides a one time $25 bonus to the LO and a $15 bonus to the processor. The bonuses are paid by the bank, not the title company.
However, under the new Reg. Z LO Compensation rule, would the selling of owner’s title be considered a proxy for a term of the transaction because the loan originator has the ability, directly or indirectly, to add, drop, or change the factor in originating the transaction.
Then I consider the fact that Owner’s Title is a consumer choice product. The borrower doesn’t have to accept it and if it is accepted, numerous disclosures have to be signed so that the borrower understands the acceptance of the product. So is it truly a “proxy” for a term then?
Bottom line, can we keep offering the bonus or not? If anyone can set me straight, I would greatly appreciate the help!
I don’t believe the bonus from the credit life is based on terms or conditions of the loan and I don’t think it is a proxy because it wouldn’t meet the two prong test:
1. The factor consistently varies with a transaction term or terms over a significant number of transactions.
2. The loan originator has the ability, directly or indirectly, to add, drop, or change the factor when originating the transaction.
Therefore, with the information you’ve given, I think it would be fine to pay the bonus you described.