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How to Structure Compensation Arrangements for Mortgage Loan Officers

Regulation Z, the Fair Labor Standards Act and the Interagency Guidance on Incentive Compensation Plans have all contributed to complicating the employment contract for a mortgage loan officer (MLO). Here are some concepts every financial institution should consider when structuring an MLO employment agreement:

  • Do not impose a monetary penalty on an MLO for failing to follow policy (e.g., collecting all required fees) on a per loan basis. That amounts to varying compensation based upon a term of the transaction. Instead, use a quarterly review to adjust commission rates positively or negatively.

  • If the commission rates paid to MLOs vary, make certain those differences in compensation are not reflected in the rates the borrowers are charged.

  • Make sure that each MLO receives at least the minimum wage and that each MLO is paid for overtime appropriately. Require MLOs to submit records for hours worked. Maintain the records.

  • Protect the institution’s financial records and intellectual property by incorporating strict confidentiality requirements and non-solicitation provisions into the employment agreement.

  • Consider the inclusion of an arbitration clause to settle disputes, and in so doing minimize the potential for class action litigation.

  • Incorporate qualitative factors into the employment agreement so that compensation is not tied exclusively to volume. Incentive compensation based exclusively on quantitative factors is subject to regulatory criticism.

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About this Author

James M. Kane, Vedder Price Law Firm, Finance Attorney
Shareholder

James M. Kane joined Vedder Price in 1993 as a shareholder and is a member of the firm’s Financial Institutions Group. From 1981 until joining Vedder Price, he was the district counsel in Chicago for the Office of the Comptroller of the Currency. As the chief legal officer for the Six-State Central District (Illinois, Wisconsin, Michigan, Ohio, Indiana and Kentucky), he was responsible for providing legal and policy advice to the Deputy Comptroller and the 500 examiners of the Central District. In this capacity, he authored opinions on a wide variety of banking law issues and represented...

312-609-7533
Daniel C. McKay, Vedder Price Law Firm, Financial Attorney
Shareholder

Daniel C. McKay, II concentrates his practice in the representation of financial institutions and corporations and their officers, directors and shareholders in connection with mergers and acquisitions, securities offerings, corporate finance, corporate governance and regulatory and compliance matters.  He has been involved in more than 150 bank or thrift  mergers and acquisitions/securities offerings, with aggregate consideration of these deals totaling over $50 billion.

312-609-7762