Mortgage industry officials sought to reassure lenders this week about their recent Supreme Court defeat.
The
Granted, the court upheld a change in Labor Department rules that said loan officers are covered by the Fair Labor Standards Act. The change meant that loan officers were no longer covered by the so-called administrative exemption and are thus entitled to those payments.
However, other exemptions to the act still might apply, such as
However, originators need to speak with their attorneys to see if their legal structures allow them to use one of the other exemptions, he cautioned.
Lenders need to be careful around the rules governing overtime because what might work for one company will not work at another, said Jack Konyk, the executive director of government affairs at the law firm of Weiner Brodsky Kidman.
It is important to speak with legal counsel in crafting a compensation policy because the lender needs to take all of the circumstances in its policy into account before seeking to use an exemption, he said.
Regulators are "all over" loan-compensation issues because of concerns that consumers are sometimes improperly steered into higher-cost products because the loan officers would get paid more, Konyk said.
"Be very careful" with compensation policies, he said.
The MBA sued the Labor Department and Secretary Thomas Perez over the agency's rule change. The U.S. Court of Appeals for the District of Columbia ruled in the trade group's favor, but the Supreme Court reversed that ruling on March 9.
Another pay-related issue that originators need to be cautious about involves marketing-services agreements. There have been some enforcement actions where regulators have said these agreements violate the Real Estate Settlement Procedures Act's ban on kickbacks.
Konyk said the rule, known as Section 8, is very specific: no one may pay or receive anything of value for a referral. Originators can pay a third party for services actually performed at their true market value.
"Agreements that say I am going to give you this for that" are problematic, Konyk said.
He gave this example: a loan officer can take a real estate broker out to dinner once a month with no strings attached because that comes under business development.
But loan officers are not permitted to make an agreement to take the real estate broker out to dinner for each loan that closes because that is giving something of value related to a mortgage, he explained.
"For decades, enforcement [of Section 8] has been very lax. Not anymore," Konyk said. "This is another massive hot button for the regulators."
The Department of Housing and Urban Development has issued guidance on marketing-services agreements involving the home-warranty business; Konyk suggested that lenders study it.
He suggested lenders who use these agreements keep detailed records on file about how the fair market value of the services provided was determined.
During an earlier panel at the conference, Daniella Casseres, an attorney with law firm of Offit Kurman, also made the point that originators can pay vendors through these marketing services agreements only for actual services performed, not on the vendor's ability to capture business.
A red flag for regulators is an agreement that promises exclusivity, for example a mortgage company is the sole provider for a particular real estate company. The perception is that these arrangements limit the consumer's ability to shop, Casseres said.
