Case Study
You were just provided the following case study within your course, however, we have also provided it here for reference. Please answer the multiple choice questions that follow the case study in the "Comments" section below.
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. 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 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 a fee to ensure she gets the
lowest possible interest rate. While Martha 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, Chet sends Martha on her way.
Before he submits her materials for underwriting, Chet checks it over one more
time, just in case anything was left blank. In doing this final once-over, Chet
notices that Martha accidentally put $30,000 down as her annual income. But he
remembered her clearly stating that she makes $70,000 per year. Why would she
do that?
Thinking
back, Chet 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.
Chet
knows that, given the volume of loans right now, it’s going to be a little
tight time-wise submitting Martha’s application and getting the appraisal done,
etc., by the projected closing date. So, Chet goes old school and uses white
out to correct Martha’s income and photocopies the application doc. This way,
the process stays on track and Martha’s correct income figure is sent in for
underwriting.
But
Chet notices something else. Martha forgot to enter the amount of time she had
been employed as a copy editor. Chet 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, Chet writes that down for length of
employment.
And,
with that, it looks to Chet like Martha’s application is ready to submit.
While
the loan is being processed, Chet goes on a fly-fishing vacation for a week. So
just to make sure things move along smoothly while he is gone, Chet calls the
appraiser that Martha has decided to use – a guy named Herman. Chet has never
worked with Herman before, so he calls to introduce himself.
In
their first conversation, Chet finds out that Herman has only been in the game
for a few months and hungry for clients. So, Chet says that if Herman can make
sure Martha’s appraisal gets done quickly, Chet will funnel more business
Herman’s way. Nothing formal, just a little nudge to ensure that the property
Martha is buying appraises the way it should and that her loan stays on track,
in exchange for a promise of building a new business relationship.
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 Herman the
appraiser to Chet. Creative types! 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! In scrambling
to deal with reinstating his license, Fred forgets to keep tabs on Martha’s
loan.
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 Herman, 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 nearly dropped the ball with the appraisal check, 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 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.
Now,
there are a few questions that we should ask here.
1.
Was
the fee Martha paid to get a low interest rate legal?
A. Possibly, it depends on how Chet records the
fee in the application materials.
B. No, it was entirely illegal. Borrowers
should not be required to pay advance fees to secure a mortgage loan.
C. Yes, it was legal, even though Martha felt a
little weird about paying it based on her excellent credit history.
2.
In
changing Martha’s annual income from $30,000 to $70,000, did Chet break any
laws?
A. He did nothing wrong. He was actually
correcting her income, so he would be considered completely innocent.
B. While he did not go about getting Martha’s
income in the best possible way, strictly speaking, Chet did not break the law
because his actions were not to disguise fraud.
C. The law specifically states that a loan
officer cannot use correction fluid on a loan document, so Chet definitely
broke the state law.
3.
While
we’re talking about filling in missing or incorrect data, what about Chet’s
handling of Martha’s employment length?
A. Chet broke the law because he negligently
allowed Martha to sign a document that had blank spaces.
B. Chet broke the law because he wrote that
down from memory, when he is required to get complete verification before
recording such information.
C. Chet did not break the law because he and
Martha had talked about this and, as her originator, the law gives him explicit
permission to fill in information such as this when the applicant forgets to do
so.
D. Chet did not break the law because the
document Martha signed was not a financial disclosure document.
4.
Assess
the relationship between Chet and Herman after their initial conversation.
A. It seems like they are setting up a good
affiliated business arrangement that will benefit both of them in the long run
– and Martha, in the short term.
B. It seems like Chet is too trusting of
Herman, an appraiser he has never worked with before.
C. It seems like Chet is breaking the law by
putting pressure (as friendly as it is) on Herman to get Martha’s appraisal
done fast and at the value needed to close the loan.
5.
Was
the kickback Chet offered his co-worker Fred to watch over Martha’s loan while
he was on vacation legal?
A. The payment was 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 forgot
the appraiser’s check on Chet’s desk for nearly a week. In effect, Fred was
being paid a fee for a service that he did not perform.
6.
Once
he found Herman the appraiser’s check sitting on his desk, did Chet handle the
situation correctly and lawfully?
A. Yes. While the fee did sit with him for a
while before getting to its intended payee, Chet did what was right and lawful
by sending it along to Herman with an explanation.
B. No. The law says explicitly that a licensee
must account for all moneys that he receives in connection with a mortgage
loan, and Chet (and Fred) failed to do that for nearly a week!
C. Yes and no. While Chet did what he could to
remedy the situation, the very fact that the check sat on his desk for five
days means that the situation falls in a gray area legally.
7.
How
many laws did Chet break in contacting Martha about refinancing her loan?
A. Three – The rates were not the same as what
Chet promised Martha when she came into the office, he contacted her too soon
after her original loan, and he failed to collect a lock-in fee.
B. None – While he did call her and tell her
that the rates were such that she might want to refinance her loan, Chet was
very forthcoming about the fact that the rates were likely to swing back up
before Martha finally got in touch with him.
C. One – Chet contacted Martha about
refinancing too soon after closing her original loan.
After you complete this assignment, you may continue in the course.
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