Federal Mortgage LawsQuestion 91 of 400
A branch manager proposes paying originators an extra bonus on any loan that closes with a rate at least 0.25% above par. Under the LO Compensation Rule, this bonus structure is:
a.Permitted because bonuses are always allowed
b.Prohibited because it bases compensation on a transaction term (the interest rate)
c.Permitted if the bonus is under $500
d.Permitted if disclosed on the Closing Disclosure
Explanation
Basing any part of an originator's compensation on the interest rate is prohibited because the rate is a term of the transaction. A bonus tied to closing above-par-rate loans directly incentivizes charging consumers higher rates and violates Reg Z 1026.36. Neither a dollar cap nor disclosure would make it compliant.
Law Reference: Loan Originator Compensation Rule (Reg Z 1026.36)Practice all 400 questions free — no signup required.
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