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Washington
NCUA reminds of dos-and-donts of compensating loan originators
ALEXANDRIA, Va. (4/25/12)--Credit unions that make closed-end residential mortgage loans will have "new flexibility" regarding how they compensate some of their loan originators, the National Credit Union Administration (NCUA) said in a letter (12-RA-03) sent to credit unions this week.

Under the terms of the Dodd-Frank Act, loan originators may not be paid funds that originate from any mortgage transaction. The rule is intended to prevent loan originators from increasing their own compensation by raising the consumers' loan costs, such as by increasing the interest rate or points.

However, the CFPB earlier this month said, in its interpretation, that the compensation rules would permit financial institutions to use funds collected from loan originations to pay for employee qualified profit sharing, 401(k), and employee stock ownership plans. This determination is not final, the CFPB said, adding that a rule addressing this issue is expected to be released by the bureau before January 21, 2013.

As a result of the CFPB guidance, Matz said, credit unions may now make contributions to qualified plans for loan originators out of a pool of profits derived from loans originated by employees.

The NCUA Chairman did, however, warn credit unions with discretionary non-qualified pension plans that are tied to profit targets to amend those plans to exclude income from closed-end mortgage loan originations. "If your credit union has a pension plan that establishes the employer's contribution amount based on a loan originator's income, that plan is particularly at risk," Matz said.

For the full NCUA letter, use the resource link.
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