Question: We are an FHA-approved lender with several branch officers. At one of our branches, a loan officer has an assistant, who is not licensed, but helps him close loans. The loan officer pays his assistant directly from his own compensation. Is this arrangement permissible?
Answer: The arrangement described above is not permissible. A loan officer may not pay his assistant out of his own compensation; rather, the lender must bear this expense.
HUD requires that a lender originating or servicing an FHA insured loan pay all of its own operating expenses. This requirement applies to the operating expenses of both the main and branch offices. “Operating expenses” is defined to include, without limitation, “equipment, furniture, office rent, overhead, employee compensation, and similar expenses”. (Emphasis added.) [HUD Handbook 4060.1 Rev-2, paragraph 2-8]
HUD further underscores this requirement by stating:
“A FHA approved mortgagee must pay all of its operating expenses including the compensation of all employees of its main and branch offices. Other operating expense that must be paid by the FHA approved mortgagee include, but are not limited to, equipment, furniture, office rent, utilities and other similar expenses incurred in operating a mortgage lending business. A branch compensation plan that includes the payment of operating expenses by the branch manager, any other employee or by a third party is a prohibited arrangement.” (Emphasis added.) [HUD Handbook 4060.1 Rev-2, paragraph 2-14B]
Additionally, HUD requires the lender to have control over and responsibly supervise its branch employees. [HUD Handbook 4060.1 REV-2, para. 2-9] In the scenario described above, the assistant is not an employee of the lender, but rather an employee of the loan officer. As such, the lender cannot control or supervise the assistant’s activities, which is a violation of HUD requirements.
In light of the foregoing, a Loan Officer employed by an FHA lender may not employ and directly compensate his own assistant. The assistant must be employed and compensated by the lender. However, the lender may be able to restructure the loan officer’s compensation arrangement so that ultimately she or he bears the cost of the assistant.
Joyce Pollison is director of legal and regulatory compliance for Lenders Compliance Group. She may be reached by phone at (516) 442-3456.