Loan Originator Compensation Remains Biggest Question

I've just survived a hurricane. In the resulting re-building process, I've learned one thing definitively; there are a lot of people who say that they can fix your problem - just give them a "deposit."

I see the same thing in the loan officer compensation wars currently evolving. No compliance officer or attorney worth his or her salt will authorize a non-compliant compensation plan because the risks so far outweigh the benefits...

CAPE CORAL, Fla. - Nov. 9, 2022 - PRLog -- The Proliferation of 1099's, Flat Fee agreements - A Warning

However, as margins and business shrink companies are adopting risky plans because they're likely to be out of business when the bill comes due. Unfortunately, this drives the entire market in the same direction.

Charging a flat fee to a customer is fine. A monthly desk rental or other fee is also fine. However, netting costs from a loan officer's comp is a problem. You cannot withhold fees from an agreed-upon commission. Have the loan originator remit them directly to you.

Independent contractors | Washington Department of Revenue

To be considered compliant with the "Anti-Steering Rules" you must set flat commission rates from your wholesalers across the board so the loan originator cannot increase his or her income by steering the customer to a particular product or lender.

Beware of reducing the loan originator's compensation because the customer changed to borrower-paid compensation.

Independent Contractors, Again

The real issue is that loan originators must meet certain standards to be considered 1099 contractors. I KNOW THAT EVERYONE IS DOING IT. However, any reputable compliance consultant or attorney who knows the rules will NOT recommend 1099 employment agreements. That seems to vary state by state and also depending on circumstances. There is no one size fits all regulation. Even in the states, you have listed there is a good amount of disagreement over what is acceptable as far as W-2 vs. 1099. However, regulators have paid surprisingly little attention to this matter. In the end, what may drive your decision to 1099 is the possible re-classification of your company's contractors as employees in an audit. The penalties are enormous - unpaid taxes, plus 100% penalty, plus interest.

If you are offering employee benefits, such as health care, it's likely you are an employer.

You CAN withhold taxes and mark the employee's W-2 as "Statutory Employee" which will allow them to deduct their business expenses on Schedule C. Or have the employee get licensed as an LLC, or even as a Sole Prop, and pay the LLC directly.

Mortgage News Digest: Can I pay a Loan Originator by 1099?

There is a sample Loan Originator Agreement in the folder you got with your 2-0 Compliance Module.

Loan Originator Compensation Plan Template - Mortgage Manuals

Contact
Thomas Morgan, MortgageManuals.com
***@mortgagemanuals.com
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