Compliance Pitfalls In Comp Plans Cost Thousands, Experts Warn – NMP Skip to main content

Compliance Pitfalls In Comp Plans Cost Thousands, Experts Warn

Mar 06, 2026
Compliance Pitfalls Cost Thousands
Managing Editor

A webinar hosted by mortgage training firm MaxClass on Thursday warned loan officers and lenders that poorly understood compensation agreements and vague clawback provisions are costing professionals thousands of dollars in lost income

The session, titled “Maximum Compliance — LO Comp, Clawbacks, and the Mistake That Is Costing You Thousands,” featured MaxClass CEO LaDonna Lockard as moderator and Jeana Lanktree, the company’s director of training and compliance. They outlined some of the most common compensation pitfalls facing mortgage professionals today.

The discussion focused on loan officer compensation structures, clawbacks tied to early loan payoff, compliance risks under federal regulations, and how poorly written compensation plans can expose both lenders and loan officers to financial and regulatory problems. The webinar comes shortly after the release of National Mortgage Professional's cover story 'Know Your Comp' which investigates where loan originator compensation ultimately goes.

Many Loan Officers Do Not Fully Understand What They Sign

One of the most common mistakes in the industry, Lanktree said, is that loan officers often sign compensation agreements without fully understanding the details.

“LOs do not always understand what they are signing, and brokers do not always understand what they have built into the plan,” she said.

Problems frequently arise when attorneys write compensation plans, but they fail to reflect how a mortgage business actually operates.

In some cases, plans require complex reporting systems or data tracking that smaller lenders simply do not have, making the plan difficult to implement and enforce.

Lockard said overly complicated compensation agreements can create confusion across a company.

“If you do not understand it, your team will not either,” Lanktree added.

Exit Clauses Determine Who Gets Paid

The webinar also highlighted how compensation disputes often occur when loan officers leave one company for another.

Because many loan officers change employers during their careers, understanding exit clauses in compensation agreements is critical, Lanktree said.

Loan officers should know exactly which loans they will be paid on if they leave their employer while deals are still pending.

“People lose money because they do not understand what happens to pipeline loans when they exit,” she said.

Lockard noted that many conflicts between lenders and loan officers occur when expectations about compensation are not clearly documented in the written compensation plan.

“If it is in writing in the comp plan, expectations are clear,” she said.

Clawbacks Most Commonly Tied To Early Payoff

Another major issue discussed was commission “clawbacks,” which allow lenders to recoup loan officers’ compensation under certain conditions.

Under federal rules, the most common clawback trigger is an early payoff (EPO) — when a mortgage is refinanced or paid off before six payments have been made.

In those cases, lenders may reclaim commissions or other fees paid to the loan officer.

Some lenders attempt to extend clawbacks beyond early payoff by tying them to “quality” or long-term performance metrics, Lanktree said. But she warned that vague definitions of quality can create problems.

“If you are going to tie clawbacks to quality, you need a very clear definition and a way to measure it,” she said.

Possible metrics could include pull-through rates, underwriting conditions, loan restructuring frequency, and borrower reviews.

However, Lanktree cautioned that many small mortgage companies lack the systems necessary to consistently measure those metrics across different lenders and investors.

Instead of relying heavily on clawbacks, she suggested using positive incentives such as performance bonuses when quality benchmarks are met.

Red Flags in Compensation Plans

The webinar also identified several warning signs that a loan officer compensation plan may create compliance risks.

Among them:

  • Vague language, particularly around borrower-paid versus lender-paid compensation or how Home Equity Line of Credit (HELOC) loans are handled
  • Overly complex structures with multiple tiers and exceptions
  • Compensation practices that deviate from the written plan
  • Unexplained pricing exceptions or side agreements

Using “creative” financial workarounds — such as marketing accounts to move money in or out of deals — can create serious regulatory exposure, Lanktree warned.

“If you are deviating from your comp plan, that is where regulators start asking questions,” she said.

Simpler Compensation Plans Often Work Best

Despite the complexity of federal regulations, Lanktree said effective compensation plans are often relatively short.

“Some of the most effective plans are just two or three pages,” she said.

Companies should start by defining the core mechanics of compensation — such as flat-fee payments, basis-point compensation, or tiered structures — and then eliminate provisions that do not apply to their business model.

Mortgage companies should also consult peers in their lending channel and industry resources when designing plans, she said.

Compensation Plans Can Change

A common misconception in the industry is that compensation plans can only be adjusted annually or quarterly.

In reality, Lanktree said federal rules do not set a specific time limit on how often compensation plans can change.

“You can change compensation whenever,” she said.

However, lenders often impose quarterly change windows internally to prevent constant adjustments tied to individual loan transactions.

When changes are made, particularly for individual employees, companies should document the reason carefully.

Lockard summarized the principle simply: “When in doubt, document it out.”

Regulatory Scrutiny Remains Strong

The discussion also addressed ongoing regulatory oversight of loan officer compensation under the Truth in Lending Act and Dodd-Frank reforms introduced after the financial crisis.

Those rules were designed to prevent loan officers from steering borrowers toward loans that paid higher commissions but were not in the borrower’s best interest.

Prior to the reforms, loan officers could earn more compensation from certain loan types or products with features such as prepayment penalties.

Regulators standardized compensation structures so pay would not vary based on loan terms or product type.

Lanktree said that during audits, consistency is often the most important factor.

Being able to show regulators that a company applies compensation rules the same way every time, with documented state-specific variations, can reduce compliance risk.

Problems often arise when companies create special arrangements for high-producing loan officers that are not available to others or not documented in company policy.

Advice For Loan Officers Who Suspect Lost Income

For loan officers who believe they may have lost compensation due to unclear clawback rules or contract provisions, Lanktree recommended addressing the issue early in the loan process.

Professionals should carefully review compensation agreements during company transitions and confirm that loan roles, responsibilities, and pay structures are correct before deals close.

“Protect yourself before the loan funds, not after,” she said.

Lockard concluded the webinar by encouraging mortgage professionals to regularly revisit their compensation agreements, rather than assuming they are fixed permanently.

Compensation plans should remain simple, clearly documented, and understandable to both lenders and loan officers, she said.

“The goal,” Lockard said, “is compliance that actually works in the real world.”

 

About the author
Managing Editor
Czarinna Andres leads editorial coverage for NMP, focusing on the trends, policies, and business strategies shaping today’s mortgage and housing finance landscape. She brings a background in journalism and media, with experience…
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