Question 24
Domain 3: Ethics, Fraud Prevention, and Consumer ProtectionAn MLO receives a $500 bonus for each loan closed above 6% interest rate. This compensation structure is:
Correct answer: B
Explanation
The Loan Originator Compensation Rule bars compensation based on loan terms, including interest rate. A bonus that pays the MLO "$500 for each loan closed above 6% interest rate" varies with the rate charged, so it is loan-term-based compensation and is prohibited.
Why each option is right or wrong
A. Permitted as long as disclosed to the borrower
B. Prohibited under the Loan Originator Compensation Rule
Under Regulation Z, 12 C.F.R. § 1026.36(d)(1), a loan originator’s compensation cannot be based on the terms of the transaction, including the interest rate. The CFPB’s Official Interpretations to § 1026.36(d)(1) treat any payment that increases or decreases depending on a loan term as prohibited compensation, and a bonus triggered only when the rate exceeds 6% is directly tied to that term.
C. Required under fair lending laws
D. Permitted only for qualified mortgages