Case Study and Questions
Please review the following case study and answer the following multiple choice questions in the Comments Section below.
Gary has been a licensed MLO working for
a brokerage company called Axis Loans for about a year now. And, over that
time, Gary has been steadily locking down his own methods for closing loans.
Some of his strategies are solid and sound and some of them… well….
Let’s look at one of his latest
transactions as an example.
A borrower named Mallory comes to Gary
for a mortgage loan. She was referred to him by her real estate agent
Patricia—whom Gary has worked with quite a few times.
Gary takes Mallory’s application and
information. He also collects a fee, on behalf of a lender called American
Bank, to ensure she gets the lowest possible interest rate. While Mallory
doesn’t love the idea of paying for an interest rate she feels she should be
able to get based on her excellent credit history, alone, she pays the fee,
anyway.
With all of her information and the fee
in-hand, Gary sends Mallory on her way. Before he submits her materials for
underwriting, Gary checks it over one more time, just in case anything was left
blank. In doing this final once-over, Gary notices that Mallory accidentally
put $30,000 down as her annual income. But he remembered her clearly stating
that she makes $40,000 per year. Why would she do that?
Thinking back, Gary realizes that they
were talking a bit while she was filling out the application, about the home
she is trying to buy and how it had three bedrooms that she didn’t know if she
would have enough furniture to fill. It was an honest slip. She had the number
three on the brain.
But Gary wants to make sure he sends in
the right information for Mallory’s loan application, because even with a
$40,000 income, the monthly payment will be tough for her to make. Luckily, she
is also selling a home, so they will able to lean on that sale (on paper)
heavily in paying for the new loan. Mallory does receive alimony money from her
ex-husband, but for some reason she requested that Gary not include that for
consideration in her loan application – even though Gary told her that it would
make a significant difference.
The other issue for Gary, though, is the
time crunch. He knows that, given the volume of loans right now, it’s going to
be a little tight time-wise submitting Mallory’s application and getting the
appraisal done, etc., by the projected closing date. So, Gary goes back into
Mallory’s signed application and goes old school – using white out and a
photocopier to correct her income. This way, the process stays on track and Mallory’s
true income figure is sent in for underwriting.
But Gary notices something else. Mallory
forgot to enter the amount of time she had been employed as a copy editor. Gary
is sure they talked about that, but he remembers them still joking about the furniture
issue around that part of the application. Nevertheless, she did tell him that
she had been with the publishing company for seven years. So, Gary writes that
down for length of employment.
And, with that, it looks to Gary like
Mallory’s application is ready to submit, and a few weeks later, Mallory’s loan is
approved and they go on to close on time.
Meanwhile, Gary has decided to take on a
part-time gig. He has gone through training and is now a licensed MLO and a
licensed real estate agent. He even has both licenses framed in his office.
And, of course, he has worked up a disclosure for clients that want his
services as both a real estate agent and an MLO – just so everything is on the
level.
Gary takes immense pride in being as
helpful as possible to his “full service clients” (those who use him for real
estate and origination services). In fact, Gary buys a new, faster laptop and
starts making house calls for clients. He makes an effort to be the most mobile
originator possible.
To make it more convenient for these
full service clients, Gary has decided to keep their complete files together –
with both original disclosures and documents from both the real estate and
origination sides – at his MLO office.
Just to cover all of his bases, Gary has
worked up an entirely separate disclosure outlining this practice of keeping
the full service clients’ real estate and origination files together.
The good news is that, over time, Gary
has amassed quite a roster of full service clients. He has gotten so many, in
fact, that he no longer has room for their files (either electronic or hard
copy) at his origination office. So, Gary decides to do some spring cleaning –
deleting or throwing out any files that are over three years old (the cutoff
for file retention in Pennsylvania), deleting or discarding any files for loans
that did not close for whatever reason, putting electronic files onto a flash
drive until he can get another external hard drive, and boxing up hard copies
and moving them to a storage unit he has rented. He takes the flash drive home.
Gary’s policy of keeping only open or
very recent files in the office becomes somewhat inconvenient when the
Department comes to inspect Axis Loans’ records.
As it turns out, Gary’s co-worker Wyatt
suffered a terrible setback when his license was not renewed for the first time
in fifteen years! Wyatt’s renewal was denied because he was accused of
railroading clients into using a particular insurance agent named Sherry for
all of their mortgage insurance needs – often funneling a loan to Sherry
without the applicant’s knowledge.
As a result of this complaint, the
Department has decided to look closer at the entirety of Axis Loans business
dealings. So, the Department demands that all of Axis’ loan records be
available for investigation immediately.
Gary feels as though the entire company
is being harassed for one indiscretion. After all, he has worked with Sherry
for years and thinks she is dependable, efficient, and honest. While he doesn’t
do the hard sell, Gary often strongly suggests Sherry as an option for his
clients.
Nevertheless, he retrieves the hard copy
files from the storage facility and the flash drive from his home and brings
them back to the office to prepare for the Department’s examination.
In the face of this investigation,
Marissa, one of the owners of Axis Loans, tasks all of the loan originators in
the office to come up with some ads to promote new loan products and to sell
themselves. She feels like the company could use some good advertising to boost
business.
Gary teams up with his co-worker Rob to
brainstorm some concepts for ads. Since they are starting this project in late
September, their ad revolves around Halloween. It has a banner across the top
that says, “Don’t be afraid of our sweet deals!” Okay, so it’s not the greatest
advertisement ever created, but Gary and Rob are proud of it.
With the big creative hurdle out of the
way, Gary delegates the job of filling in the standard information to Rob. The
rest of the flyer is pretty standard stuff: interest rate quote, repayment term
of the loan in years, APR, and the company address. Rob even adds “Established
in Pennsylvania in 1987” right under the Axis Loans logo as a final touch –
just to give potential clients confidence that the company has longevity in the
community.
Spurred on by his burst of ad-making
creativity, Gary decides to design some new business cards for himself. He uses
the Axis logo as a faded watermark across the front of the card, with his name
and the office address, phone number, and website address front and center.
The new ad campaign does boost business
for the month of October, but, at the beginning of November, the Department
comes back with an order for Axis Loans to cease and desist all brokerage activities.
Steering clients to particular insurance agents was more widespread in the
company than Gary knew. While he was just suggesting Sherry to clients because
he wanted the best for them, it seems some of his co-workers were actually
steering their clients to particular insurance agents in exchange for
kickbacks.
To Gary, this situation is unfortunate,
but he decides not to let it keep him down. He will continue going out and
doing both real estate and origination business and serving his clients the best
that he can.
Now, let’s ask some questions about
Gary’s situation.
Case Study Questions
1. What
do you think of Gary’s handling of Mallory’s income on the application?
A. He
did nothing wrong. He made sure her correct income figure was submitted on the
application, he took into account the sale of her current home, and the
decision not to report her alimony was Mallory’s idea, which is entirely legal.
B. While
he did not go about getting Mallory’s income in the best possible way, strictly
speaking, Gary did not break the law by changing Mallory’s file. And, the law
states that reporting income from sources such as alimony is at the discretion
of the applicant. But, the heavy reliance on the proceeds from the sale of
Mallory’s current home could be a violation of the law.
C. The
law specifically states that a loan officer cannot revise application
information, so Gary definitely broke the state law in that regard.
Additionally, all of Mallory’s income must be reported, regardless of source,
so Gary also broke the law by not insisting that Mallory include her alimony
income as part of her loan application. Finally, although relying primarily on
the sale of her current home to finance her repayment of the new loan is not
ideal, there is nothing legally wrong with doing the deal that way.
2. While
we’re talking about filling in missing or incorrect data, what about Gary’s
handling of Mallory’s employment length?
A. Gary
broke the law because he negligently allowed Mallory to sign a document that
had blank spaces.
B. Gary
broke the law because he wrote that down from memory, when he is required to
get complete verification before recording such information.
C. Gary
did not break the law because he and Mallory had talked about this and, as her
originator, the law gives him explicit permission to fill in such information
when the applicant forgets to do so.
D. Gary
did not break the law because the document Mallory signed was not a financial
disclosure document.
3. Is
Gary’s full service client filing approach legal?
A. Yes,
because he discloses to these clients that he uses this filing system to retain
their records.
B. No,
because the law prohibits keeping loan origination records with records from
any other business.
C. Possibly,
as long as Gary’s disclosure mirrors the one outlined in the law. If not, he
filing system might not be legal.
D. Yes,
even without the disclosure, Gary’s filing system is legal. The disclosure is
just a courtesy to his clients.
4. Gary’s
decision to put records on a flash drive (which he takes home) and move hard
copies to a storage unit is:
A. Completely
legal and a smart idea. It makes more storage for future clients and keeps
records safe.
B. Entirely
illegal and pretty dumb. The records should be on-hand at all times in case a
client has a problem or the Department wants to examine them.
C. Illegal
as it stands, but could have been legal if Gary had submitted a written request
to the Department prior to moving the records and kept the flash drive either
at his office or in the storage unit with the hard copy records.
D. Legal
as it stands, as long as Gary maintains the new storage location for a minimum
of three years.
5. What
crucial piece of required information is missing from both the advertisement
flyer and Gary’s business card?
A. Gary’s
cell phone number
B. A
Statement that Axis is a state-approved licensee
C. Gary’s
unique identifier
6. When
Gary found out about the Department’s cease and desist order against Axis
Loans, did he do the right thing by carrying on?
A. No.
A cease and desist order against a company that employs an originator also
applies to the individual originator.
B. Yes.
A cease and desist order against a company that employs an originator does not
apply to the individual originator.
C. Yes,
but only to the extent that he finishes up the current transactions he has in
the pipeline. Once those loans have gone through, then Gary should stop
origination activities.
D. Yes,
Gary can continue origination activities, in general, but he must cease and desist
on any transactions that are being investigated or in question.
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