The loan options (anti-steering) disclosure, step by step: Reg Z §1026.36(e)

What the rule prohibits

A loan originator may not "direct or 'steer' a consumer to consummate a transaction based on the fact that the originator will receive greater compensation from the creditor in that transaction than in other transactions the originator offered or could have offered," unless the loan is in the consumer's interest (§1026.36(e)(1)). Steering means "advising, counseling, or otherwise influencing" the borrower to take that loan, and it only matters if the loan closes (comment 36(e)(1)-1).

The rule is about creditor-paid compensation, which is why it bites brokers: a broker whose comp plan is 1.25 percent with one lender and 1.00 percent with another has a reason to prefer the first. The commentary's example is a borrower who likely qualifies at 7 percent with Creditor A but is placed at 7.5 percent with Creditor B because B pays more. That's a violation unless the higher-rate loan is in the borrower's interest, for instance because the cheaper loan has a prepayment penalty or up-front costs the borrower can't pay (comment 36(e)(1)-3).

You're not required to send every borrower to the lender that pays you least. But if you review options from a significant number of your lenders and do send the borrower to the lowest-comp option, the rule is "deemed to be satisfied" (comment 36(e)(1)-2.ii). Nor do you have to sign up with new lenders: "possible loan offers" means loans available from creditors you already regularly do business with (comment 36(e)(1)-2.i).

The safe harbor

Instead of defending each loan as "in the consumer's interest," a broker can use the safe harbor in §1026.36(e)(2): present the borrower with loan options that meet the conditions in §1026.36(e)(3), for each type of transaction the borrower expressed interest in. A broker who does this is deemed to comply with (e)(1). A broker who doesn't gets no presumption either way (comment 36(e)(2)-1).

"Type of transaction" has exactly three values (§1026.36(e)(2)): a loan whose APR can't increase after closing (fixed), a loan whose APR can (adjustable), and a reverse mortgage. If the borrower is interested in both a fixed and an adjustable loan, you present a set of options for each.

The loan options disclosure is simply the document that records this presentation. The regulation doesn't prescribe a form, a layout, or a signature; those come from lenders and from practice.

Step by step

1. List the lenders you regularly do business with

A creditor counts if you have a written broker agreement with it, it funded a loan from you this month or last, or it funded 25 or more of your loans in the previous twelve months (comment 36(e)(3)-2).

2. Get loan options from at least three of them

"A significant number" means three or more of those creditors. If you regularly work with fewer than three, use all of them (comment 36(e)(3)-1). You have to obtain and review options from a significant number; you don't have to show the borrower options from every one.

3. Keep only loans the borrower likely qualifies for

You need a good-faith belief, based on what's reasonably available when you present the options, that the borrower likely qualifies (§1026.36(e)(3)(ii)). You can rely on what the borrower told you even if it later proves wrong, and you're not expected to know every lender's underwriting guide, but rate sheets with minimum credit scores and other eligibility criteria count as reasonably available (comment 36(e)(3)-4).

4. Identify the three options for each type of transaction

Lowest rate; lowest rate without risky features; lowest total points and origination fees (§1026.36(e)(3)(i)). The definitions are below.

5. Present them, and highlight them if you show more

If you present more than three loans for a type, you must highlight the ones that meet the three criteria (§1026.36(e)(3)(iii)). The commentary adds that more than four options per type "would not likely help the consumer make a meaningful choice" (comment 36(e)(2)-2).

6. Record it and keep it with the file

The safe harbor is only useful if you can show what you presented and when. Date it, have it signed, and keep the pricing it came from.

The three options, defined

The loan with the lowest interest rate (§1026.36(e)(3)(i)(A)). This is the lowest rate the borrower can likely get, "regardless of how many discount points, origination points or origination fees the consumer must pay to obtain it" (comment 36(e)(3)-3). For a loan whose initial rate is fixed for at least five years, use the initial rate. For an adjustable loan with a shorter fixed period, use the fully-indexed rate at closing, ignoring any introductory discount; for a step-rate loan, the highest rate in the first five years.
The loan with the lowest interest rate without risky features (§1026.36(e)(3)(i)(B)). The features are: negative amortization, a prepayment penalty, interest-only payments, a balloon payment in the first seven years, a demand feature, shared equity, or shared appreciation. For a reverse mortgage the list is a prepayment penalty, shared equity, or shared appreciation. If the lowest-rate loan has none of these, options one and two are the same loan.
The loan with the lowest total dollar amount of discount points, origination points, or origination fees (§1026.36(e)(3)(i)(C)). If two loans tie, the one with the lower rate.

Fewer than three loans can satisfy the safe harbor when one loan meets more than one criterion (§1026.36(e)(4)). And if you can't form a good-faith belief that a loan meeting a criterion exists for the borrower, you can satisfy the safe harbor by presenting all the loans the borrower likely qualifies for that meet the other conditions (comment 36(e)(2)-2).

Why lenders require it signed

The regulation puts the duty on the loan originator, but the lender funds the loan and buys the risk, so wholesale lenders make the disclosure a condition of the file. GO Mortgage's broker guide, for example, has the broker upload "a complete copy of the Loan Options/Anti-Steering Disclosure with evidence it has been disclosed to the borrower" at submission, and says it "must be signed by all borrower[s] in order for the loan to fund" (Wholesale Lending Guide). Plaza Home Mortgage's guide lists the Loan Options Disclosure among the documents in a submission package (Wholesale Broker Guide). Each lender has its own form and timing; the content, though, is the same three options.

It's presented before the borrower picks a loan, so it usually predates the lender's Loan Estimate. The figures on it are pricing, not an offer and not a Loan Estimate; a plain statement to that effect on the form avoids confusion with the disclosures under §1026.19(e), though nothing in §1026.36(e) requires one.

What the safe harbor doesn't do

It doesn't change the compensation rules in §1026.36(d). You can still only be paid under a plan that doesn't vary with the loan's terms, and never by both the lender and the borrower on one loan. See the compensation guide.
It covers creditor-paid compensation. On a borrower-paid loan there's no creditor compensation to steer toward; whether the lender still wants the form is up to the lender, so check its guide.
It is not a substitute for the Loan Estimate or any state disclosure. Some states have their own broker fee agreements and disclosures; check yours.
It doesn't help with loans a borrower didn't close through you (comment 36(e)(1)-1), and it doesn't apply to HELOCs (§1026.36(b)).

Common mistakes

Three loans from one lender, pricing from no one else. That can satisfy the presentation (comment 36(e)(3)-1), but only if you actually obtained options from at least three creditors first.
A form filled in after the fact with whatever the chosen lender's pricing was. The document is evidence of a comparison; it has to reflect one.
Using the teaser rate on a short-fixed ARM as the "lowest rate." The commentary says fully-indexed.
Mixing fixed and adjustable loans in one set of options. Each type gets its own set.
Presenting loans the borrower can't qualify for to make the chosen one look good.
No record of the rate sheets the options were drawn from, so no way to show the options were real.

In OpenLOS

OpenLOS prices a loan across every lender whose rate sheet or live feed you've loaded, and builds the three options from that run: lowest rate, lowest rate among products the rate sheet flags as free of the risky features, and lowest points plus origination fees (with the tie broken by rate). It warns when fewer than three lenders priced the loan. Saving the disclosure recomputes the pricing on the server from the stored rate sheets and archives a snapshot: the options, which lenders' sheets were used and when they took effect, which lenders were excluded and why, how the originator is paid, the borrower's name and loan number, and the originator's name and NMLS ID as they were at the time. The record can't be edited or deleted. It prints as a one-page form with a pre-Loan-Estimate statement and signature lines for the borrower and the loan originator; there's no e-sign.

Limits worth knowing: it uses the rate on the lender's sheet as the loan's rate, so for an adjustable loan with a fixed period under five years you'll need to check the fully-indexed rate yourself; it groups options by loan type, term, and amortization, which is narrower than the rule's fixed-or-adjustable types; and it relies on the features the lender's rate sheet declares to tell a "risky" product from a plain one. It requires the loan's compensation election (lender-paid or borrower-paid) before it will save a disclosure. See the demo or the calculation in the source.

Not legal advice. A calculation aid produces candidates; the broker remains responsible for the comparison, the good-faith qualification judgment, and the disclosure.

The loan options disclosure (anti-steering safe harbor), step by step