Can someone please clarify?
1026.36(d)(1)(iv) states that payment of compensation to an individual loan originator may not be directly or indirectly based on the terms of that individual loan originator’s transaction or transactions. I get this, but I am having a hard time wrapping my mind around the difference between “terms and Proxy of terms” and “profits of mortgage related business” which could take into consideration terms/ proxy .
The 10 percent compensation rule, states that certain compensation to an individual loan originator under a non-deferred profits based plan, where compensation is determined with reference to profits of person from mortgage related business, is permitted as long as it does not exceed 10% of the individual loan originator’s total compensation for that period.
The commentary regarding profits of the person state that a non-deferred compensation plan is where compensation is paid based in whole or in part, on profits of person paying compensation. Profits from mortgage related business are profits determined with reference to revenue generated from covered transactions. Revenue includes origination fees and interest, income from servicing and proceeds from selling such loans. It then states “if the amount of the individual loan originator’s compensation under non-deferred profits based compensation plan paid for a time period does not exceed 10 percent of… total compensation corresponding to same time period, compensation under non-deferred profits based compensation plan, compensation may be paid under 1026.36(d)(1)(iv)(B)(1) regardless of whether or not it was determined with reference to profits of the person from mortgage related business. This last sentence gets me! When they say profits of the person do they mean bank / creditor / broker?
We have a plan for certain staff that is based on their book of clients. It takes into consideration as well as other factors the spread between deposits and loans (to include covered transactions interest rate consideration obviously) and loan fees. My thoughts are that because the employees meet the definition of Individual Loan originator, that this compensation model would be prohibited as it is tied to the terms of the loan(s) for an individual loan originator. So prohibited vs. application of 10 percent, correct?
There is also a profit sharing plan in place that rewards all employees at year end if a certain ROA is met. This takes mortgage loans into consideration but because it is at the bank wide level, tied back to mortgage related business performance of the business unit (not specific individual) and is a profit sharing plan it would fall under the 10 percent rule vs. being prohibited. Correct?

When they say profits of the person do they mean bank / creditor / broker?

It means the creditor/bank when referencing profits for non-defferred profits-based bonus pools.


We have a plan for certain staff that is based on their book of clients. It takes into consideration as well as other factors the spread between deposits and loans (to include covered transactions interest rate consideration obviously) and loan fees. My thoughts are that because the employees meet the definition of Individual Loan originator, that this compensation model would be prohibited as it is tied to the terms of the loan(s) for an individual loan originator. So prohibited vs. application of 10 percent, correct?

Since the bonus/incentive is based on the individual LO's loans, this is prohibited.


There is also a profit sharing plan in place that rewards all employees at year end if a certain ROA is met. This takes mortgage loans into consideration but because it is at the bank wide level, tied back to mortgage related business performance of the business unit (not specific individual) and is a profit sharing plan it would fall under the 10 percent rule vs. being prohibited. Correct?

As long as the bonus/incentive is based on loans originated by multiple LOs, it doesn't exceed 10% of the LO's total compensation, and an individual LO's bonus/incentive is not affected by his individual contribution to that ROA, this is permitted.

Thank you. Those were my thoughts. I think I was just over analyzing it.