Our Mtg. Division Manager is looking for ways to hold MLOs accountable for errors on loan files. Would either of the options below be a violation of Reg Z’s MLO Compensation Rules:
1- We have issues with appraisals being ordered too soon in the process and the borrower does not pay for them in advance. When the loan doesn’t close for whatever reason, the bank is stuck paying the bill. If the MLO did not follow bank guidelines for time frames, can we pass that expense to the MLO without violating the comp rules?
2 – We are considering putting into place a quality scorecard. There would be 3 – 5 measures that would speak to the quality of the files for a period of time, for instance quarterly. Thresholds would be set for each measure and if the MLO exceeded those thresholds, there would be an impact to their commissions. Examples: % of errors on GFEs issued; % of loans closed compared to apps taken; Avg. # of days from application to closing.
1. I don’t believe this would violate the compensation rules. You need to ensure you aren’t providing incentive for lender to collect the appraisal fee before they provided the early disclosures and the borrower has indicated their intent to proceed with the transaction and have clear policies and procedures reflecting this.
2. I think this would be fine as long as you use measures that are not based on terms of the loan or proxies for terms and are considered permissible methods of compensation (see Reg Z Commentary, Paragraph 36(d)(1)-2(i) ). Also look at the examples of bonuses based on terms versus performance benchmarks listed under Paragraph 36(d)(1)-1(ii).