Case Study
Chet has been a licensed MLO working for a
company called S & L Associates for about a year now. And, over that time,
Chet has been steadily locking down his own methods for closing loans. Let’s
look at one of his latest transactions as an example.
A borrower named Martha comes to Chet for a
mortgage loan. She was referred to him by her real estate agent Patricia—whom
Chet has worked with quite a few times. Chet takes Martha’s application and
information and sends her on her way.
Chet knows that, given the volume of loans
right now, it’s going to be a little tight time-wise getting everything done by
the projected closing date. And, what’s more, he has scheduled a remote hiking
trip for the following week.
While he is gone, Chet asks his buddy and
co-worker Fred to look after Martha’s file because Chet will be out of cell
phone range and away from Internet access. In exchange for his help, Chet will
pay Fred $200 out of the loan commission – just for keeping Martha’s loan on
track. Everybody wins!
During Chet’s vacation, Martha mistakenly sends
the check intended for the third party appraisal scheduling company to the S
& L office. Fred does not notice the check because he is dealing with a
licensing issue of his own. Specifically, after fifteen years as an MLO, for
the first time, Fred’s license has not been renewed!
The problem stems from one little clause that
Fred started inserting into his loan docs to cover his personal bottom line.
Because the economy has been a pretty tough, Fred’s commissions started
flagging. He routinely found himself working hard to get a loan off the ground,
only to see his effort evaporate when the loan didn’t go through for whatever
reason – often because of the prospective borrower’s less-than-stellar credit
history. So, Fred came up with a clause that requires the prospective borrower
to pay a nominal fee should the loan not go through for any borrower-related
reason. Under the terms of the clause, if the borrower backs out of the loan
for any reason, Fred will still get a third of his usual commission.
To ensure that this clause does not cause
sticker shock for any prospective borrowers, Fred has worked up a separate
disclosure outlining the conditions that would trigger the payment of the fee.
Nevertheless, some prospective borrowers still
balk at the fee, and one even reported Fred to the commissioner’s office.
Unfortunately for Fred, his license renewal came up right around the same time
as this complaint was filed. So, the commissioner suspended Fred’s license, and
Fred is left to scramble to try and get it reinstated.
But while he is getting this issue worked out,
Fred keeps working. After all, he doesn’t know if he is going to have an income
should his license hearing not go his way.
The bottom line is, for Chet, all of Fred’s
problems mean one thing: Fred does not keep proper tabs on Martha’s loan
application. So, after sitting on Chet’s desk for five days, Chet comes back,
finds the check in a stack of mail, and forwards it on to the third party
appraisal scheduling company, along with an explanation of the situation.
A few weeks later, Martha’s loan is approved
and they go on to close on time.
And, even though he didn’t really do anything
on the loan, Chet decides to honor his promise to give Fred the $200 bonus for
helping out with Martha’s file. After all, Fred really needs the cash right
now.
A year and a half later, seeing that interest
rates have dropped significantly, Chet contacts Martha about possibly
refinancing her mortgage. After two weeks of phone tag, in which Chet lets
Martha know that the rates could swing back up, she finally decides to come in
and talk about a refinance.
Sure enough, by the time Martha gets in to
Chet’s office, the rates aren’t quite as good as they were when he originally
contacted her. Even so, after running the numbers, Chet finds that Martha will
still save $85 per month on her mortgage payment with the refi! So, Martha
applies to refinance her mortgage (including her correct annual income and
length of employment, this time) and is approved.
Meanwhile, Bev, one of the owners of S & L,
asks Chet to do some housecleaning on S & L’s files. The company has been
slow to switch over to an electronic record system, and she thinks Chet is just
the guy to initiate the process.
Chet takes on the task with gusto, examining
the files and deciding to dispose of any files that are more than two years old
from the date that the loan was closed. Chet figures that this system will
immediately cut down the work he will have to do when he digitizes the files,
and save on hard drive space later on.
However, when he finally finishes digitizing the
files, Chet finds that there were many more files than he had anticipated, and
he ends up using all of the hard drive space on his office computer, and his
laptop. So, he puts the last bunch of files on a flash drive and drops it into
his briefcase for safekeeping.
The day after he finishes the project, Chet
goes on vacation for a week. Unfortunately, Chet forgot to give his password to
anyone in the office, and he has not had a chance to transfer the files over to
the office network. So, when the commissioner’s representative arrives for an
examination, the files are not available to the department examiner when
requested.
Bev tries to reach Chet to get his password,
but his love of extreme vacations has, once again, taken him out of cell phone
range and away from Internet access for seven days. Once he comes back, Chet
gives Bev the password to avoid that situation from happening again. And, since
he feels bad for putting the company in a bind, Chet takes it upon himself to
be the contact person for the department and help the examiner get the
necessary files for the examination.
Assignment:
In the comment section below answer the following Questions. Be sure and utilize your PDF course booklet for quicker review of the code. Click here to open the course booklet.
1.) Was Fred's custom termination clause legal? Yes or No, what section of the law did you use to determine your answer?
2.) Was the kickback Chet offered his co-worker Fred to watch over Martha’s loan while he was on vacation legal?
1.) Was Fred's custom termination clause legal? Yes or No, what section of the law did you use to determine your answer?
2.) Was the kickback Chet offered his co-worker Fred to watch over Martha’s loan while he was on vacation legal?
A. The payment could be considered illegal because Chet paid Fred from
the loan commission after Fred’s license expired
B. The payment was legal because it was a little incentive among
friends.
C. The payment was illegal because Fred did not
even do any work on Martha’s loan. In effect, Fred was being paid a fee for a
service that he did not perform.
D. The payment was legal because they worked in the same office.
Please place your answers in the Comments Section below.
Please place your answers in the Comments Section below.
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