"If any loan originator receives compensation directly from a consumer in a transaction, no other person may provide any compensation to a loan originator, directly or indirectly, in connection with that particular credit transaction. ... The restrictions imposed [under this section] relate only to payments, such as commissions, that are specific to, and paid solely in connection with, the transaction in which the consumer has paid compensation directly to a loan originator.

Thus, payments by a mortgage broker company to an employee in the form of a salary or hourly wage, which is not tied to a specific transaction, do not violate [this section] even if the consumer directly pays a loan originator a fee in connection with a specific credit transaction.

However, if any loan originator receives compensation directly from the consumer in connection with a specific credit transaction, neither the mortgage broker company nor an employee of the mortgage broker company can receive compensation from the creditor in connection with that particular credit transaction."

Now, permit me to unpack this language and render it in less ambiguous terms:

First, let's recognize that the terminology and phrasing in this provision are somewhat mangled. For interpretive ease, staying within the context of the commentary itself, it seems entirely clear that the "loan originator" is a mortgage broker, a company or employer.

Second, I will use some literary license and call the employee of a mortgage broker a "loan officer."

So, here goes my interpolation and interpretation:

Compensation tied to Transaction

Text: If any loan originator receives compensation directly from a consumer in a transaction, no other person may provide any compensation to a loan originator, directly or indirectly, in connection with that particular credit transaction. ... The restrictions imposed [under this section] relate only to payments, such as commissions, that are specific to, and paid solely in connection with, the transaction in which the consumer has paid compensation directly to a loan originator.

Interpolation: When a mortgage broker is directly compensated by a consumer, no other compensation may be provided to the mortgage broker from another source, directly or indirectly.

Interpretation: When the consumer directly compensates the mortgage broker in a transaction, the mortgage broker may not receive additional compensation from any other source, directly or indirectly; but, the text does not restrict the mortgage broker from paying a portion of such compensation to the loan officer.

Example

Text: Thus, payments by a mortgage broker company to an employee in the form of a salary or hourly wage, which is not tied to a specific transaction, do not violate [this section] even if the consumer directly pays a loan originator a fee in connection with a specific credit transaction.

Interpolation: The mortgage broker may pay salary or hourly wages to a loan officer for originating loans that are not tied to a specific loan transaction, although a consumer may pay a fee to the mortgage broker to originate a specific loan.

Interpretation: Salary and hourly wages are incidental to loan officer compensation, when not tied to a specific loan transaction, irrespective of whether a mortgage broker receives direct compensation from a consumer for a particular transaction.

Source of Compensation

Text: However, if any loan originator receives compensation directly from the consumer in connection with a specific credit transaction, neither the mortgage broker company nor an employee of the mortgage broker company can receive compensation from the creditor in connection with that particular credit transaction.

Interpolation: When a mortgage broker is directly compensated by a consumer in a transaction, no other compensation may be paid to the mortgage broker and the loan officer by the creditor.

Interpretation: Compensation paid directly by the consumer to the mortgage broker on a transaction concomitantly causes the elimination of the mortgage broker's and loan officer's ability to receive compensation by the creditor.

However, some of our clients have contacted me about an alleged position unofficially circulated by the FRB itself, which seems to contradict my aforementioned interpretations. Various industry and media organizations are stating that the FRB allegedly holds that loan officers can be paid only salary or hourly wages on loan transactions where mortgage broker compensation is directly received by the consumer. Supposedly, this view is alleged to be held by certain industry organizations and some lawyers who are offering legal opinions.

Perhaps I am in the minority, but the plain meaning of the text - as I see it - does not prevent a loan officer from receiving compensation from a mortgage broker on specific loan transactions where compensation to the mortgage broker is directly paid by the consumer, so long as the above-mentioned constructs are fully met. If it were otherwise, certain TILA statutes - and numerous RESPA statutes, and various provisions in the Dodd-Frank Act - would become incoherent.

and until, that is, other planning requirements are met, I don't see how compelling the implementation of the loan compensation requirements on April 1, 2011 can be viewed as anything but disruptive, if not destructive, to the livelihoods of mortgage loan originators.