A compliance exception review raises a Dodd Frank Compensation Rules question for a compliance analyst. What answer should guide the file?
Correct Answer
B) Keep compensation independent of loan terms or proxies
Why this is correct: Dodd-Frank's Loan Originator Compensation Rules prohibit basing an originator's compensation on the terms of a specific transaction (like the APR or interest rate) or on a proxy for those terms. Compensation must be independent to prevent steering borrowers into more expensive loans to increase the originator's pay. Why the other choices are wrong: "Tie the compensation plan to APR, rate, or other loan terms on covered transactions" is wrong because it directly violates the prohibition against compensation based on loan terms. "Assume the Dodd Frank Compensation Rules condition is met because the borrower satisfied the separate loan estimate requirement" is wrong because compliance with one rule (providing a Loan Estimate) does not satisfy the separate, strict compensation independence requirements. "Pay the originator based on a loan-term proxy after closing" is wrong because paying based on a proxy, whether before or after closing, is prohibited. Exam tip: For compensation rules, think "independent and fixed"—the originator's pay should not vary based on the loan's specific terms or cost to the borrower.
Why This Is the Correct Answer
The correct response is "Keep compensation independent of loan terms or proxies" because Loan originator compensation cannot be based on transaction terms or proxies and dual compensation is restricted.
Why the Other Options Are Wrong
Option A: Tie the compensation plan to APR, rate, or other loan terms on covered transactions.
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: Assume the Dodd Frank Compensation Rules condition is met because the borrower satisfied the separate loan estimate requirement.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
Option D: Pay the originator based on a loan-term proxy after closing.
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
MLO compensation restrictions: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
For MLO compensation restrictions questions, separate the required file step from plausible sales, timing, or documentation shortcuts.
Common Mistakes to Avoid
- -Choosing an internal exception instead of the governing rule
- -Treating preliminary or informal facts as a substitute for required documentation
- -Answering from a familiar but unrelated mortgage topic
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