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Last
time, first in our series Industry Checks
& Balances, we addressed the initial
basic step that people involved with the
origination pipeline need to have a clue about
‘What's a Good Loan!' Having that knowledge,
keeps the junk loans out of portfolios, and
helps to keep the industry safe so you can have
a long and successful career in it.
Today, let's look at another Industry Check
& Balance that's vital. As an owner of a
mortgage company – Big or Small and whether
you're a Mortgage Banker or Broker, if you have
Loan Officers working for you, than you're
probably a bigger Gambler than you may realize!
You may know the FBI's reported several times
that up to 60% of all industry fraud happens at
origination, but there's more …
As we move deeper into this current industry
cycle, and further away from the ‘Gold-Rush'
days of the last one – you're beginning to see
a new paradigm emerging as things change.
Generally things are moving in a better
direction, and you need to be a part of a
smarter way to operate your own company.
Odds are you yourself were raised during the
last cycle, that began in August 1998. And,
therefore received very little industry
education and training, since most employers
during that period typically focused on
production and sales, and not your long term
career. Unfortunately you got short-changed, and
now as an owner yourself, you're beginning to
see your limited exposure to only sales is
hurting you. Sadly anything beyond that which
you have learned, has probably been through hit
& miss, with a lot of bumps and bruises
along the way as many of the non-industry laws
and regulations that owners must know have
eluded you, in addition to the dozens of
lending/real estate ones you do hear about a
lot.
If you're like most we encounter at Secret!
University and inside many industry discussion
boards, then you most likely know every little
about the several mortgage laws which effect
advertising issues (commercial messages that
promote credit transactions requiring
disclosures are considered advertisements under
Regulation Z. Messages inviting, offering or
otherwise announcing generally to prospective
customers the availability of credit
transactions, whether in visual, oral or print
media, are covered by the regulation). Other
specific rules for advertising, as established
by HUD, are set forth in the Fair Housing Act.
Additional advertising rules are contained
within Regulation Z (as mentioned above) and
ECOA (Regulation B). There are also specific HUD
requirements for lenders involved in the
origination of FHA-insured loans – plus
several non-mortgage laws that also cover
advertising issues. For example the FTC
regulates a wide range of advertising issues, as
does the Business & Professions Code in your
State's "good faith and fair dealing"
doctrine. Plus, of course, subjects that relate
to the Federal Wage & Hour Act alone with
the Federal Fair Labor Standards Act along with
your own individual State labor laws Employees
vs. Independent Contractors, where you most
likely violate the above indicated Federal
Statutes and your own individual State laws too,
by having your LO's operate unlawfully as Independent
Contractors.
So, where the big Gamble you say then? Odds are
both you and your LO's incorrectly believe it's
their principal job duty is to ‘bring in
customers,' when it's really a customer
service/help desk type of a position. So, here's
the hazard you're exposed to. Neither of you
know all that much about advertising laws and
potential violations, since you almost certainly
have them focus on production/sales just like
you where treated! So, permitting them to
‘bring in customers' using their own
advertising savvy, exposes your company to
future liabilities. Remember, if times get
tough, or slow, they can resign – whereas
you're stuck there!
I want you to think this through thoroughly (and
do the math) without a knee-jerk reaction to the
following advise.
Put LO's on "salary" (with a small
bonus here and there if you like), and save the
tens or hundreds of thousands of dollars
annually you won't be paying them
‘commissions' and instead spend it on
advertising to build up YOUR Company, it's
credibility, and cover your own butt against
advertising violations. If you like, we can show
you how to recruit and hire them, done it this
way hundreds of times! You'll get far more bang
for your buck this way, and better control over
the type and quality of applicants that come to
your company… Do The Math.
While we on this subject, it long overdue for
you to convert your LO's to
"employees" with proper Employment
Contracts (where you'll be complying with
appropriate labor laws) and you'll also have the
protections afforded to Employers – like when
they conspired to steal and download trade
secrets, to commit fraud in connection with
computers; leave and steal your company's
property. As ‘Employees' if they take customer
lists, logs, loan files, other information that
are trade secrets to the company, they can be
prosecuted federally. The Computer Fraud and
Abuse Act (CFAA) (18 U.S.C. §1030) sets forth
criminal and civil penalties for the misuse of
employer computer data. It can be used to sue
departing employees AND their new employer who
may ultimately benefit, and IS liable as well!
We want to tweak the odds in your favor,
so you can build a solid and enduring business
moving forward. One which you can be proud of.
In summary, the move to pay big choking
commissions leads directly to the fact that the
FBI has repeatedly reported over the last couple
of years, 60% of mortgage fraud is done at
origination! Greed is a powerful thing and it
can Kill Your Company!
HUD Reissuing
DPA Ban Proposal
To stem losses to the FHA insurance fund, the
Department of Housing and Urban Development is
reissuing a proposed rule that would ban
seller-funded downpayment assistance on Federal
Housing Administration-insured mortgages. HUD
has been tangling for several years with
nonprofit groups that arrange for low-income
homebuyers to receive downpayment assistance
from home sellers. HUD maintains that
foreclosures on these FHA loans are three times
higher than for other loans because the seller
jacks up the price to recoup the downpayment
"gift." In March, a federal district
court judge ruled that HUD violated the
Administrative Procedures Act in issuing a
similar rule to stop seller-funded DPA programs.
FHA Commissioner Brian Montgomery said the judge
provided HUD with a "roadmap" to
modify the proposed rule and reissue it for a
new 60-day comment period. The FHA commissioner
also told the National Press Club Monday that
the FHA has booked $4.6 billion in
"unanticipated long-term losses"
mostly due to seller-funded DPA loans. He
stressed that the FHA is solvent but may need a
congressional appropriation if such losses
continue. Meanwhile, downpayment assistance
providers are ready to block the rule again.
"We will not watch Commissioner Montgomery
or HUD sever the only lifeline available to the
low- to moderate-income families," said
Scott Syphax, president and chief executive of
Nehemiah Corporation of America.
FHA Chief
Would Settle for $550K Loan Limit
Housing Commissioner Brian Montgomery says a
maximum $729,750 loan limit for the Federal
Housing Administration is too high, and that he
would settle for a permanent increase of
$550,000, which is included in an FHA
modernization bill passed by the Senate in
April. Congress temporarily raised the FHA loan
limit to $729,750 until Dec. 31 as part of the
economic stimulus bill. "We project that
the new, temporary loan limits will help
approximately 100,000 homeowners obtain safe
FHA-backed loans by the end of the year,"
Mr. Montgomery said in a speech to the National
Press Club. In response to a question, Mr.
Montgomery declared that $550,000 would be a
"good place to settle" and said it
would allow the FHA to serve California, where
the median house price is $520,000. The FHA
modernization bill passed by the House would
make the $729,750 loan limit permanent.
FHA Market
Share Tops 10%
Increasing demand for Federal Housing
Administration-insured loans has pushed the
FHA's market share above 10%, and loan
endorsements in the first eight months of fiscal
year 2008 already exceed the total for all of
fiscal 2007. "Since September 2007, FHA has
helped pump more than $76.1 billion in mortgage
activity into the housing market," FHA
Commissioner Brian Montgomery said, and $30.3
billion of those loans have helped conventional
borrowers refinance into FHA loans. The FHA
endorsed 424,700 mortgages totaling $59.8
billion in fiscal 2007 when subprime lenders
were still taking customers away from the
agency. Since the subprime meltdown last year,
the FHA's market share has risen from 3% to
10%-12%, Mr. Montgomery told the National Press
Club. The latest FHA activity report shows
mortgage applications running at a 2.1 million
annual rate during the last two weeks of May,
compared with an annual rate of 777,900 in the
same period of fiscal 2007. FHA loan
endorsements are running at a 1.36 million
annual rate, up 130% from that of a year ago.
FHA Changing
Pricing
The Federal Housing Administration is moving
ahead with risk-based pricing so it can
refinance more subprime borrowers into safer and
less expensive FHA-insured loans and attract
more creditworthy borrowers. "It's a
historic move, representing the first time in
FHA's 74-year history that we are going to base
premiums on risk," FHA commissioner Brian
Montgomery said last month. The RBP structure
that goes into effect July 14 raises the upfront
insurance premium by 75 basis points to 2.25%
for the riskiest FHA borrowers. This RBP
structure also will be used with the expanded
FHA Secure program the Department of Housing and
Urban Development announced on April 9. The
expanded FHA Secure program, which also goes
into effect July 14, is designed to help
refinance delinquent borrowers with underwater
mortgages.
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