In a covered closed-end consumer mortgage secured by a dwelling, the consumer directly pays a mortgage broker organization a 1% origination fee. The wholesale creditor also pays that same organization 0.75% as origination compensation for the same transaction. Does this comply with the dual-compensation rule?
Correct Answer
C) No: the creditor cannot also compensate the broker organization that receives direct consumer compensation in this transaction
C. These two payments constitute prohibited dual compensation. The test turns on sources of origination compensation, not just the combined percentage. Identifying both amounts on a disclosure does not create an exception. Scope and exceptions: A consumer-paid broker organization may compensate its individual originator subject to the applicable requirements. A creditor may also provide consumer-benefit funds used solely for other transaction costs. Neither exception permits the creditor payment described here. Source: Section 1026.36(d)(2)(i)(A)–(C); comment 36(d)(2)(i)-1 — https://www.consumerfinance.gov/rules-policy/regulations/1026/36/
Why This Is the Correct Answer
C. These two payments constitute prohibited dual compensation. The test turns on sources of origination compensation, not just the combined percentage. Identifying both amounts on a disclosure does not create an exception. Scope and exceptions: A consumer-paid broker organization may compensate its individual originator subject to the applicable requirements. A creditor may also provide consumer-benefit funds used solely for other transaction costs. Neither exception permits the creditor payment described here.
Why the Other Options Are Wrong
Option A: Permitted where both payments appear on the Closing Disclosure
Disclosure does not legalize a prohibited payment arrangement.
Option B: Prohibited only where the combined payment exceeds the market rate
A market-rate comparison does not resolve the dual-payment prohibition.
Option D: Permitted where the 2 payments together stay under 3% of the loan
A 3% combined cap is not this rule's test.
Exam Tip
Separate prohibited second-source compensation from permitted internal compensation and other closing-cost credits.
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