Which practice violates the MLO compensation rule?

The practice that violates the MLO (Mortgage Loan Originator) compensation rule is when a mortgage broker company receives compensation from both the creditor and the consumer on a transaction that is then used to pay a commission to the MLO. This is problematic because the MLO compensation rule, established under the Dodd-Frank Act, is designed to prevent "double-dipping," where an MLO might receive compensation from multiple sources for the same service.

According to the rule, MLOs can only be compensated from one source—either the consumer or the lender—but not both for the same transaction. This is intended to ensure that the interests of the MLO are aligned with those of the consumer and to prevent any potential conflicts of interest where the MLO's compensation could be influenced by the lender's incentives that may not align with the best interests of the borrower. Therefore, receiving compensation from both the creditor and the consumer is a direct violation of this compensation structure and could lead to practices that do not serve the borrower's best interest.

The other scenarios listed do not present the same conflict. For example, a mortgage broker receiving payment solely from a lender or a bank paying commission to its MLOs for closed loans is compliant with regulations. The