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Branch Office Operations - Compensation

Mar 02, 2017 01:21PM MST

If the individual responsible for providing compliance for a Lender has a loan license and occasionally originates a loan for the lender, does this violate HUD Handbook 4000.1, Section IA (3)(b)(ii) Compensation section, which states that "The Mortgagee must not compensate employees who perform underwriting, Quality Control (QC) or mortgage servicing activities on a commission basis".
The individual can earn a commission if the loan closes. Her pay for her other duties is entirely salary based. The Lender's Quality Control review is performed by an outside independent third party. This individual is responsible for responding to any findings that may be found by the Quality Control review. However, another individual would be responsible for responding for any loans that she may have originated.

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Mike Olsen AHACPA Mar 02, 2017

Hi Kevin

I think the first question you need to ask is is there an independence issue.? The HUD Handbook 4000.1 Section V (Quality Control, Oversight and Compliance) A2a discusses who may perform quality control. This section (i) says:
“The Mortgagee must ensure that employees who perform QC Program functions are, at all times, independent of all Loan Administration processes and do not directly participate in any of the Loan Administration processes represented in the QC Plan. The Mortgagee must ensure QC employees are not within any chain of reporting or management that is directly connected to Loan Administration staff.”

This describes the independence of the employee who performs QC Program functions. I believe this relates to the employee who actually performs the QC reviews. You stated that the QC reviews are done by a 3rd party, not an employee. However, it dose say employees who perform QC Program functions, which this person is an employee and is performing QC functions. If this is interpreted to mean the actual QC review process, then I don’t think you have an independence problem, unless, as you stated, the responses involving the employee. I don’t believe this independence applies to the employee that is responding to the findings. As stated in this section, the QC review findings are to be reported to Sr. Management and they are responsible for responding and follow up.

In the event you determine that there is not an independence problem, in regard to the compensation of the employee and the origination of loans, as long as the compensation relating to the QC function is salary based and not commission based, that should be OK. They should be able to receive a commission on the loans originated. They are performing two different functions and are being compensated based on the function they are performing.

Hope this helps.


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