With the record retention requirements imposed by the CFPB’s LO Compensation Rule, there’s no such thing as having too much documentation. When preparing for a CFPB audit, it’s imperative to have back up documentation that supports and justifies every dollar of compensation paid to loan originators. Not only does the CFPB want to know the factors influencing compensation and how the compensation was calculated, but as Calvin Hagins, Deputy Assistant Director of Originations for the CFPB said,
It shouldn’t come as a surprise when a CFPB examiner says, ‘I understand what you did in 2014 to 2015, but what did you do in 2012 and 2013?’ So expect a backward-look approach to this.”
Just thinking about all the overhead costs to do this – between the file folders, bankers boxes, storage space, and manual labor – to do this manually makes my head hurt. And maintaining such sufficient records to this magnitude can’t possibly be met when compensation is calculated and managed on spreadsheets. So, to help you out, we’ve created this Proactive LO Comp Check List for you to keep on hand to make sure the minimum record retention requirements of the LO Comp Rule are covered at the loan, employee and branch levels. For every loan. For every pay period.
1. Loan Originator Identification Information
Under the rule, institutions are required to provide LO identification information on certain loan documents. Since in this case more is better than less, make it a habit of always including the primary originators name and NMLS number. If you don’t have employee directory that provides this for you, a good resource to bookmark is the NMLS® Consumer Access website.
2. Compensation Agreements, Past & Present
As Calvin Hagins stated, the CFPB wants to know how loan originators will be paid in the future as well as how they are being paid in the past. While some LO’s compensation plans may stay the same over their tenure, others are likely to have changes. At the bare minimum, we recommend you maintain diligent records for all your LO’s past and present compensation plans that include the plan’s:
- Activation date,
- Inactivation date,
- Confirmation date,
- Number of times used to calculate the compensation,
- Minimum and/or maximum compensation amounts, and
- Tier level breakdown.
3. Loans Participated In
With LO’s compensation amounts being heavily dependent upon the number of loans they close and fund, it’s best practices to have quick and immediate access to a list of all the loans each LO participated in; whether or not they were assigned to the loan as the primary originator. A good way to do this is like CompenSafe’s Loans Completed report, which outlines the high-level summary data of each loan the employee was assigned to in a specified time period. Either way, the key here is making sure the information is accessible and configurable to custom timeframes.
4. Direct and Indirect Compensation
All compensation paid to loan originators, whether direct or indirect compensation, bonuses, or straight commission, needs to be documented going back a minimum of three years from the date the compensation was paid. An efficient way to achieve this is with loan commission and bonus reports for every loan, that breaks down the employees tied to the loan, the loan details, amount of compensation paid to each employee, the nature of the compensation paid, who paid the compensation, and when the compensation was paid. Loan level reports like this can really help answer those questions the CFPB has regarding the factors that influence the compensation, how compensation was calculated, and what exactly played a role in how much compensation was paid.
5. Payroll Related Email Correspondence
A common CFPB request heard throughout the industry is for details outlining the interaction of and between payroll, HR, and origination departments in terms of processing compensation for LO’s, teams and producing branch managers. Among the types of communication records being requested is copies of emails sent to employees from the organization and third parties that pertain to the employees’ compensation. It’s like trying to find a needle in the haystack for mortgage companies with 100’s of loan originators emailing about their compensation each payroll period; without automated email archiving, it becomes quite a convoluted process trying to track down a specific email, especially going back three years. Implementing a process that automatically tracks and records all payroll related emails is crucial to a painless CFPB audit process.
An Alternative Approach with Automation and Integration
Fortunately, there is a solution to this madness - CompenSafe. With CompenSafe, all these items are automatically tracked, recorded, stored, and checked off the list for you. It removes the manual hunting and gathering of data spread across systems and spreadsheets by bringing every transaction that passes through your LOS together in one centralized location. No spreadsheets, no manual calculations and no bankers’ boxes required.
Contact us today to schedule a live demo to learn more about all the other ways in which CompenSafe helps 100’s of lenders each day conquer complexity and take down the Spreadsheet Syndicate.
This post is part of the on-going blog series, Conquer Complexity: Defuse the Destructive Power of Spreadsheets in Mortgage Lending, that focuses on how to conquer complexity, eliminate the use of spreadsheets, reduce inefficiency, and increase margins.