Thursday, December 20, 2007

Examinations – the Most Common Issues Leading to Enforcement

The vast majority of mortgage brokers and lenders come through their banking department examination with a few problems to resolve. However, there are always some companies that have a major issue that is brought to light during the examination and leads to an enforcement action. You don't want to be one of them.

Which are the most common issues that lead to an enforcement action?

1. Unlicensed activity;
2. Material misstatements in loan documents;
3. Failure to produce documents;
4. GFEs that do not disclose all of the fees;
5. GFEs that are not consistent with HUD-1s;
6. APRs not attempted or seriously different from the required calculation.

Make a New Year’s resolution to look through your files to make sure you don’t find these errors. It could cost you plenty.

Thursday, December 13, 2007

How to Hire Good Mortgage Professionals

When the 1003s were pouring in and your main concern was getting bodies in your office to get the loans closed, did you pay any attention to who you were hiring?

Unless you are bucking the current trend (and congratulations to you if you are), you probably have plenty of time now to review the qualifications of who you hired and draw up a plan of how to hire the best mortgage professionals as you need them.

Know whom you are hiring. Get written authorization from your prospective employees to conduct extensive checks on them. Check references if you can (although many large companies will not give out any information other than name and dates of employment), do background checks (some states require them, do them even if your state does not require them), do court history checks, regulatory agency checks, and credit checks.

Double verify all information that you receive and document your results. Interview your prospective employees face-to-face. Watch out for body language that contradicts what is being said. Ask pointed questions about knowledge of RESPA, prior office policies regarding statements made to customers, ability to work with supervisors, attitudes, and any prior customer complaints to regulatory agencies and customer lawsuits. Find out about the goals of your prospective employee - do they match your company’s goals?

If you have any hesitation that the prospective employee will meet the highest standards of ethical behavior, do not hire this person. If any reference hesitates before answering any questions about the prospective employee, that is a red flag and should probably disqualify your hiring of this person. Yes, the reference may have a grudge or be stating incorrect information, but unless you have strong indications otherwise, why hire a potential headache? Your prospective employee will inevitably have an explanation for the bad information you are getting about him/her – whom do you believe? Is there a reason to even take a chance on this person? Remember if your guess turns out to be wrong, this person could cost you thousands of dollars in lawsuits or fines from the banking department. Never forget that bad apples move around from company to company, state to state until they are caught. You don’t want them to be caught in your company. Don’t pay attention only to the number of loans they will bring to you. They still can cost more than they earn for you. They can cost you your company.

Friday, December 7, 2007

Colorado Requires Errors and Omissions Insurance

Colorado has adopted a rule, effective November 13,2007, to require that all mortgage brokers maintain errors and omissions insurance in an amount not less than $100,000 per licensed individual for each covered claim and an aggregate of not less than $300,000 per licensed individual. The deductible on the insurance cannot be more than $5,000.

I have stated before that each mortgage company should carry errors and omissions insurance. Even if you are the sole employee of your company, you may not even realize that the statements that you make to a customer or the actions you take might in the future lead to a lawsuit. This is true even if you have done nothing wrong. The coverage will pay for your legal costs as well as any possible settlement or judgment (if the settlement is negotiated by and agreed to by your insurance carrier).

Mistakes happen. And you can’t be everywhere, watching what your employees do and say to every customer. Errors and omissions insurance covers your mistakes and the mistakes of your employees and independent contractors.

Even if you are not licensed in Colorado, it’s a good business practice to have errors and omissions insurance in place now. Talk to your insurance broker to get this done. You can’t afford to be without it. Currently, Ameriquest is a defendant in a lawsuit that alleges that it falsified borrower documents to get approval of the loans. Various mortgage brokers are being brought in by Ameriquest as defendants, claiming that the mortgage brokers provided the falsified documents. Attorneys typically ask for a $5,000 retainer to take the case. Do you have thousands of dollars to defend yourself in a lawsuit, even if you are ultimately successful? If not, get the insurance.