In the context of Dodd-Frank, which phrase best describes the restriction on compensation sources for originators?

In the context of Dodd-Frank, which phrase best describes the restriction on compensation sources for originators?

• A. Originator compensation may come from any source regardless of borrower payments
• B. The borrower must compensate the originator directly, with no other sources allowed
• C. Compensation from other sources is restricted if the borrower pays fees that compensate the originator
• D. There are no restrictions on compensation sources

Answer: (C)

Under Dodd-Frank, the way an originator is paid is regulated to prevent conflicts of interest and steering. The idea is that compensation should not come from multiple sources in a way that incentivizes the originator to push certain loan terms. The best description is that compensation from other sources is restricted if the borrower pays fees that compensate the originator. In practice, if the borrower is paying an origination fee that goes to the originator, the originator should not also receive compensation from lenders or other third parties for that same loan. This helps ensure the originator’s incentives align with the borrower’s interests rather than with extra payments tied to loan terms. The other options would either allow multiple, unregulated payment sources or state there are no restrictions, which conflicts with the safeguards established by Dodd-Frank and RESPA.

Under Dodd-Frank, the way an originator is paid is regulated to prevent conflicts of interest and steering. The idea is that compensation should not come from multiple sources in a way that incentivizes the originator to push certain loan terms. The best description is that compensation from other sources is restricted if the borrower pays fees that compensate the originator. In practice, if the borrower is paying an origination fee that goes to the originator, the originator should not also receive compensation from lenders or other third parties for that same loan. This helps ensure the originator’s incentives align with the borrower’s interests rather than with extra payments tied to loan terms. The other options would either allow multiple, unregulated payment sources or state there are no restrictions, which conflicts with the safeguards established by Dodd-Frank and RESPA.