Two files close the same week, both for $340,000. One carries a prepayment penalty and pays the originator $2,400; the identical one without the penalty pays $1,900. A reviewer asks what makes the difference lawful or not.
Correct Answer
A) Keep compensation independent of loan terms or proxies
Why this is correct: The core rule under 12 CFR 1026.36(d)(1) prohibits basing a loan originator's compensation on the terms of a specific transaction or on a proxy for those terms. The manager's proposal to pay more for a higher interest rate directly ties compensation to a loan term (the interest rate), which is forbidden. The only compliant action is to keep compensation independent of loan terms or proxies. Why the other choices are wrong: "Use profitability of the selected product to decide the originator bonus" is wrong because profitability is a proxy for loan terms, which is prohibited. "Change MLO pay after the lock because the borrower chose discount points" is wrong because adjusting pay based on the borrower's choice of discount points ties compensation to a transaction term. "Offset a pricing exception by reducing only this originator compensation" is wrong because making a compensation adjustment based on a pricing exception (a transaction-specific event) violates the rule. Exam tip: Remember the golden rule: MLO compensation cannot vary with *any* specific loan term (like rate, points, fees) or a proxy for those terms. If you see a plan that pays more for a higher rate or a more "profitable" loan, it's a violation.
Why This Is the Correct Answer
The correct response is "Keep compensation independent of loan terms or proxies". Compensation cannot be structured around transaction terms or proxies for those terms.
Why the Other Options Are Wrong
Option B: Use profitability of the selected product to decide the originator bonus.
This choice is not the best answer because it applies the wrong file step for MLO compensation restrictions; the governing rule is tested by the correct option.
Option C: Change MLO pay after the lock because the borrower chose discount points.
This choice is not the best answer because it applies the wrong file step for MLO compensation restrictions; the governing rule is tested by the correct option.
Option D: Offset a pricing exception by reducing only this originator compensation.
This choice is a tempting shortcut, but it conflicts with MLO compensation restrictions because the file still needs the required documentation, timing, or rule-based review before the action is taken.
Memory Technique
If the pay changes because loan terms change, the answer is usually no.
Exam Tip
For MLO compensation restrictions questions, separate the required file step from plausible sales, timing, or documentation shortcuts.
Common Mistakes to Avoid
- -Higher revenue on a loan does not make term-based compensation permissible.
More Origination Questions
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During a post-application update, a quality-control reviewer encounters a Credit Analysis and Evaluation issue. Which response should avoid a shortcut that would misapply the rule?
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Before closing, the team discovers that a borrower asks which upfront charge can be collected before intent to proceed. What is the safest compliant answer?
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Before releasing the final construction draw, which combination most directly supports project completion and clear collateral?
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A branch manager asks about a loan file because a processor wants to omit known monthly obligations from underwriting. What should happen?
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