National Mortgage Lender Sued by Consumers over LO Comp

A recent putative class action complaint, filed in the U.S. District Court for the District of Maryland by five consumers, alleges that a national mortgage lender illegally compensated loan originators (MLOs) based on loan terms, in violation of TILA and Regulation Z’s Loan Originator Compensation Rule.

The complaint alleges that the lender required MLOs first to try to sell borrowers on loans with inflated interest rates or fees, and then, if an MLO could not upsell a borrower, the borrower’s rate or fees would then be reduced.  In those cases, the lender allegedly required the loan file to be transferred to a purportedly fictitious “Internal Loan Consultant” (ILC) who, the plaintiffs claim, existed only on paper, while documenting an allegedly falsified reason for the transfer.  If the MLO transferred the file, s/he would be compensated at a rate of half the MLO’s standard commission (usually 50 basis points).

The consumers allege that such internal transfer concealed that the original MLO continued to perform the same role with respect to the loan file, for a reduced commission, which corresponded to the lower pricing of the loan.