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Bay Equity – Loan Originator Compensation

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					                             Bay Equity – Loan Originator Compensation

Dear Valued Customers,

Bay Equity Wholesale Lending is committed to keeping you informed of the regulatory changes ahead. We have
finalized our compensation plan according to the Federal Reserve Board ruling, which will apply to all loan
applications taken on or after April 1st, 2011.

     Summary:

     In general, this rule prohibits compensation paid to a loan originator based on interest rate, product, or any
     other term or condition of a particular loan. Additionally, loan originators may no longer receive
     compensation from both the borrower and the lender. You and your borrower will be able to choose
     between a borrower-paid or lender-paid compensation model on a loan-by-loan basis. Bay Equity will ask
     that you choose one of our lender-paid tiers each quarter. This will give you and the borrower the ability to
     decide if you would like to proceed with the borrower-paid option or the predetermined lender paid option.
     Your Account Executive will be in touch shortly with more details regarding our amended Broker
     Agreement and will explain the process of selecting a tier regarding the lender paid option prior to April 1st,
     2011.

     Bay Equity will enable you to receive compensation in one of the following ways:

     • Receive compensation from either the borrower or the lender, but not both.
     • Receive compensation based on a fixed percentage of the loan amount.
     • Bay Equity will allow you to choose a level of compensation regarding the lender-paid option. You will
        have the ability to change the level of compensation on a quarterly basis. The predetermined lender-
        paid option will be in .125 increments with no minimum; however, a compensation maximum of 3.0%
        of the loan amount will apply in the lender-paid option.

     In general, this will give you and your borrower the choice between borrower-paid compensation or lender-
     paid compensation on a loan-by-loan basis with Bay Equity. The lender-paid option will be determined
     quarterly by you giving you a range between .125 above the par rate and up to 3.0% above the par rate.

     Lender-Paid Compensation:

     • Compensation is paid to the broker owner.
     • The broker owner will select the lender-paid compensation on a quarterly basis. The broker owner will
        choose from 17 different options ranging from 1.0 to 3.0 in premium pricing (rebate). Bay Equity’s
        brokers will have the ability to choose a different lender-paid compensation model each quarter.
     • Broker compensation is paid as a percentage of the principle loan amount with minimum of 1.0 and
        maximum of 3.0.
     • Third-party costs can’t be paid by the broker; the borrower will have to pay for these costs by paying cash
        at closing, or by financing them through the loan principle or interest rate. If the borrower selects to pay
        the third-party costs through the interest rate, the rate may be used to cover their third-party costs. The
        rate selected should have enough premium (rebate) included to cover the brokers compensation, but
        cannot exceed the total of the third-party costs. This is done to ensure that there will not be extra
        premium pricing (rebate) after the broker has been compensated and the third-party fees are paid.




                                                                                  Phone: 415.632.5150      Fax: 926.226.1938
• Broker charges to the borrower will be limited to the lender-paid option that the broker owner chooses.
   All in-house processing fees should be taken into consideration when the broker owner is selecting a
   lender-paid compensation plan (meaning the broker will not be able to charge processing fees, admin
   fees, etc. on top of the lender-paid compensation.)
• Bay Equity will offer a minimum compensation amount to our brokers of $1,500 that will apply to the
   lender-paid compensation model. This can apply to loans with smaller loan amounts. The originator
   should build the compensation into the pricing when looking at our rate sheet.
       o Example of minimum compensation of $1,500:
                   A broker currently has a lender paid compensation model of 125 bps with Bay Equity.
                     The broker originates a loan with a loan amount of $100,000. The broker would price
                     the loan at 150 bps in premium pricing if they are looking for the minimum
                     compensation of $1,500 on this specific loan.

Example of Lender-Paid compensation
(Note: Pricing listed below is for demonstrative purposes only and does not represent Bay Equity’s pricing or broker compensation):


• In this scenario we will assume that the broker owner has selected to be paid 200 BPS from Bay Equity
    on lender-paid transactions in this quarter.
• In this scenario we will use a loan amount of $200,000.
• We will assume total third-party fees of $1200.00.

          o In this scenario, the borrower would receive a rate of 5.25% on a 25 day lock.
          o The broker has selected a lender-paid compensation model for the quarter of 200 (Tier 16 in the
              grid shown below). The broker will be paid $4,000.00 in compensation from Bay Equity when
              the loan closes.
          o The additional .583 shown in the rate sheet below will be used to pay for the borrower’s third-
              party costs. That totals $1,166.00 (calculated by: .00583 X $200,000), which will leave the
              borrower to pay the remaining $44.00 in $1,200.00 third-party costs used in this example.
          o Under the lender-paid model, brokers will not be permitted to credit any portion of their
              compensation to the borrower. All third-party costs must be paid by the borrower in cash,
              financed into the loan amount, or via credit for the YSP premium over and above the broker’s
              lender-paid compensation as shown in this example.
          o All loan feature and product price adjustments will be applied to the premium pricing (rebate)
              shown on the rate sheet. The loan attribute hits must be taken into consideration when a loan is
              being priced. For example, if this loan is a 2-4 unit, you will need to price in the attribute hit of
              100 basis points into the rate sheet when you are quoting your borrower. In the example below,
              you would select the 5.5% option. This would pay you the 200 basis point lender paid
              compensation, pay Bay Equity the 100 basis point hit for the 2-4 unit and allow the borrower to
              have an additional 59.7 basis points that can be credited to third-party fees.
          o Under this model, the broker must not collect any fees or compensation directly from the
              borrower.
          o Broker owners must ensure that any compensation paid to the loan officers is compliant with
              regulatory restrictions.




                                                                                                Phone: 415.632.5150            Fax: 926.226.1938
    Bay Equity’s Lender-Paid Compensation Schedule (In BPS):




Borrower-Paid Compensation:

• The loan originator will negotiate directly with the consumer regarding compensation.




                                                                          Phone: 415.632.5150   Fax: 926.226.1938
• There will be no minimums; however, a compensation maximum of 3% of the loan amount will apply in
   the borrower-paid compensation model.
• Third-party costs can be financed through the loan principle or interest rate. If the borrower selects a rate
   that includes premium pricing (rebate), the premium pricing may be used to cover third-party costs.
   Total premium pricing cannot exceed the total of the third-party costs (meaning the premium pricing
   must be less than the total amount of the third-party fees to make sure there is not additional premium
   pricing left after the loan funds). The premium pricing cannot be used to pay the loan originator in the
   borrower-paid compensation model.
• Compensation can’t be paid through rate, but can be financed through the loan principle or paid in cash at
   closing by the borrower.

Example of borrower-paid compensation
(Note: Pricing listed below is for demonstrative purposes only and does not represent Bay Equity’s pricing or broker compensation):


• In this scenario we will use a loan amount of $200,000.
• We will assume total third-party fees of $1200.00.

          o In this scenario, the borrower would receive a rate of 4.875% on a 25 day lock.
          o In this scenario, the borrower would receive a premium of .586 or $1,172.00 (calculated by:
              .00586 X $200,000). This premium can be applied towards third-party settlement costs.
          o All loan feature and product adjustments will be applied to the borrower’s premium pricing. For
              example, if the subject property is a 2-4 unit, then the borrower must select a rate with at least
              100 basis points in premium pricing to cover the attribute hit of 100 basis points shown on our
              rate sheet. They could also decide to pay this attribute hit of 100 basis points as a discount point
              upfront.
          o The broker will negotiate with the borrower to determine the amount of compensation that will be
              paid. No compensation will be paid to the broker from the lender.
          o The borrower must pay the broker in cash or by financing the amount into loan principle. The
              premium pricing given to the borrower based on the interest rate selected may not be used to
              pay the broker compensation, but can be used to pay third-party fees.
          o The amount of compensation may vary on a loan-by-loan basis, but cannot exceed Bay Equity’s
              maximum of 3%.
          o A broker may give a credit out of their compensation to the borrower to cover third-party costs
              under this model.
          o Broker owners must ensure that any compensation paid to the loan officers is compliant with
              regulatory restrictions.




                                                                                                Phone: 415.632.5150            Fax: 926.226.1938

				
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