Please Read
the following Case Study and then choose the correct answer for each of the
multiple choice questions. You may type
in your responses 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. 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 submitting Martha’s application and getting the appraisal done, etc.,
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 appraiser 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 appraiser, 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.
Bev, one of
the owners of S & L Associates, tasks Chet with coming up with some ads to
promote new loan products.
Chet
recruits his co-worker Fred to brainstorm some concepts for ads. Since they are
starting this project in late September, their main 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
Chet and Fred are proud of it.
With the big
creative hurdle out of the way, Chet delegates the job of filling in the
standard information to Fred. The rest of the flyer is pretty standard stuff:
interest rate quote, repayment term of the loan in years, original principal
loan amount, APR, company address, and unique identifier.
Meanwhile,
spurred on by his burst of ad-making creativity, Chet decides to design some
new business cards for himself. He uses the S & L 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.
Fred brings
his finished ad flyer to Chet for approval. Chet looks it over and decides it
looks great. He tells Fred to take it down to make some color copies there in
the office for immediate use. Chet knows a few real estate agents with open
houses coming up that could use the ad right away. Once Fred does this, Chet
sends the master copies of the ad flyer and his new business card to the print
shop they always use.
A week or so
later, the print shop courier stops by with boxes of flyers and Chet’s business
cards. Everyone in the office is so impressed with Chet’s business cards that
they decide to make it a company-wide design.
Also, the
few color copies of the ad flyer that Fred made a pretty significant impact
among Chet’s real estate buddies. Two of them sold properties because the ad
flyers helped give buyers a fuller picture of the deal from start to finish,
and three more had buyers who were really interested.
Word gets
around, so the demand for more of these Halloween-themed flyers has gone
through the roof – so much so that every last flyer that they got back from the
print shop had to be shipped right back out to Chet’s real estate contacts.
All in all,
it was good creative project that broke up some of the monotony of Chet and
Fred’s workday. The only problem is that the print shop did not send back the
CD with the master files on them, and Fred accidentally closed the flyer file
without saving it.
So, while
Chet’s business card master file is safe on his computer, they no longer have a
copy of the ad flyer in the office. But it’s not such a big deal. After all,
the ad was only good for the month of October and they are already well into
the month. If they need to make more, they can call the print shop and,
hopefully, the shop will be able to locate the CD and make more flyers.
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,
impressed by Chet’s initiative with the ads, Bev 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.
After a
couple of weeks, Chet finishes up the project and 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 department 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.
1.
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.
2.
Fred’s custom
termination clause:
A. Is perfectly
legal.
B. Could have been
illegal, but Fred made it legal by disclosing it to prospective borrowers.
C. Is entirely
illegal.
3.
What about Chet’s
business card? Did it comply with New Hampshire State Law?
A. Yes. He put all
of the pertinent contact information on it that a potential client would need.
Otherwise, S & L would not have adopted it as a company-wide design.
B. No. Chet should
have included S & L’s unique identifier on the card.
C. No. Chet should
have the words “Licensed by the New Hampshire banking department” with the
company name.
D. Both B and
C.
4.
What do you think
about the print shop not sending back the CD with the master file for the
flyer?
A.
It is not really
a problem. They can always call the print shop and have them find the CD to
make more flyers.
B.
It definitely
poses a problem because S & L needs to keep a copy of the flyer on file for
at least three years.
C.
It could be a
problem, but only if the interest rates fluctuate too much and the product
suddenly becomes irrelevant.
D.
It will not
really be a problem, since the law only requires the licensee to keep such a
flyer on file as long as the promotion is running. Because this promotion is
only for October, and they are well into October, not having a copy on file in
the office is not entirely legal, but okay.
5.
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.
6.
Chet’s filing
system:
A.
Is perfectly
fine. It makes room in S & L’s file cabinets and on the company’s hard
drives.
B.
Is not legal
because Chet disposed of records that were only two years old.
C.
Is not legal
because Chet should have gotten permission from the commissioner before
digitizing the records.
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