Welcome to the California Mortgage Bankers Association’s … · Welcome to the California Mortgage Bankers Association’s Mortgage Quality and Compliance Monthly Webinar June 25,

Welcome to the California Mortgage Bankers Association’s Mortgage Quality and Compliance Monthly Webinar

June 25, 2015

You have entered the call on mute. If you have a question for Susan or CMBA, please direct a question to her only by typing it into the panel to the left of the screen. The operator will open the lines for audience

participation for Introduction of New Members, Alerts and also Q & A at the conclusion of the presentation.

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CMBA MORTGAGE QUALITY & COMPLIANCE WEBINAR Annemaria Allen, Committee Chair Susan Milazzo, Executive Director

DIAL IN #: (800) 351-6802 Passcode: 4378

AGENDA

I. Preliminary Remarks and welcome to the committee – Annemaria Allen, The Compliance Group

II. Introduction of New Members/Member Alerts / Recent Developments / Upcoming Events

III. Litigation Update – Michael Pfeifer, Pfeifer & DelaMora, LLP, California MBA General

Counsel

IV. Presentation – Marketing Service Agreements

Speaker: H. Burton Embry, SVP – Enterprise Risk Management, Primary Residential Mortgage, Inc.

Litigation Update: June 25, 2015 In Re: Guarantee Mortgage Corporation

By Michael R. Pfeifer, Esq. Copyright 2015 Pfeifer & De La Mora, LLP. CMBA MQAC June 25, 2015

Copyright 2015 Pfeifer & De La Mora, LLP. 4

Litigation Update June 25, 2015: In Re: Guarantee Mortgage Corporation

In the Matter of: Guarantee Mortgage Corporation (2015-CFPB-0011) (Consent Order Filed June 5, 2015) 1. Respondent compensated mortgage loan originators (MLOs) based on the terms of mortgage loans they had originated in violation of the Loan Originator Compensation (LO Comp) Rule, 12 C.F.R. § 226.36(d)(1)(i)(2011) (re-codified as 12 C.F.R. § 1026.36(d)(1)(i) (2011)), and the Consumer Financial Protection Act of 2010 (CFPA), 12 U.S.C. § 5536(a)(1)(A.) Result: 1. Permanent Injunction against compensating MLOs in violation of TILA 2. Civil Money Penalties: $228,000 to CFPB w/in 10 days (contribution by individual

owners of the company required to extent company lacks the financial resources to pay)

3. “Redress” to consumers w/in 30 days 4. Submission to extensive monitoring, record-keeping & disclosure requirements.

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FINDINGS AND CONCLUSIONS 1. During the Relevant Period (04-01-11 thru 08-31-12), Respondent was an independently owned mortgage-brokerage firm and mortgage banker headquartered in San Rafael, California that operated about 10 branches in the San Francisco Bay Area. Respondent is no longer a going concern. 2. During the Relevant Period, Respondent was a “person” under the LO Comp Rule, which prohibits any person, including a creditor, from paying compensation to a loan originator if the amount of the payment is based on a loan transaction’s terms or conditions, including the loan’s interest rate. 12 C.F.R. § 1026.36(d)(1)(i) (2011) (revised 2014); Official Interpretation §1026.36(d)(1)(i). 3. During the Relevant period, Respondent was also a “covered person” under section 1002(6) of the CFPA because it offered or provided “consumer financial product[s] or service[s],” 12 U.S.C. § 5481(6)



FINDINGS AND CONCLUSIONS (Cont.) 4. During the Relevant Period, Respondent paid monthly fees to marketing services entities that were associated with each of its branch offices. Respondent set the fees based on the profitability of the associated branch. The owners of the marketing-services entities then drew the monthly fees as additional compensation. Marketing-services-entity owners included Producing Branch Managers as well as, in some instances, one or more other Loan Originators within the branch. 5. Under agreements with the marketing-services entities, the fees were not supposed to include income from loans originated by the owners of the marketing-services entities. But as a result of Respondent’s accounting methods during the Relevant Period – specifically, Respondent’s improper allocation of expenses in branch income statements – those fees did include income from originations by marketing-services-entity owners.



FINDINGS AND CONCLUSIONS (Cont.) 6. Those fees included income from their originations of Retail Loans. (Retail Loans typically generated more revenue the greater the rate of interest above par.) Consequently, owners of marketing services entities received compensation based on the terms of loans they had originated. 7. Because Respondent paid Loan Originators compensation that included amounts that varied based on the terms of loans they had originated, Respondent violated the LO Comp Rule. 12 C.F.R. § 1026.36(d)(1)(i) (2011) (revised 2014).


Litigation Update June 25, 2015: In Re: Guarantee Mortgage Corporation.

PFEIFER & DE LA MORA, LLP

Pfeifer & de la Mora, LLP is an “AV” rated law firm dedicated to providing litigation and compliance representation to members of the

financial services industry, including mortgage lenders, servicers, investors, brokers, and related service providers.

Michael R. Pfeifer, Esq. Pfeifer & De La Mora, LLP

765 The City Drive South, Suite 380 Orange, California 92868

(714) 703-9300 [email protected]

mailto:[email protected]

H. Burton Embry SVP – Enterprise Risk Management Primary Residential Mortgage, Inc. (801) 596-8707 X-1000201 [email protected]

Marketing Servicing Agreements (MSAs)

June 25, 2015

Legal Disclaimer

I am not a lawyer (by choice). For optimum performance and safety, please read and listen to this webinar carefully.

This webinar has been sanitized for your protection. Opinions expressed herein are solely mine or my wife’s, but not necessarily those of my employers (past or present), my friends or my sport buddies. This presentation has been shown to cause cancer in laboratory rats. This presentation is for educational purposes only. This Disclaimer supersedes all previous Disclaimers I have made. Other restrictions may apply. If this webinar lasts more than four (4) hours, seek immediate help.

Should We Offer MSAs?

• As a Company, you must consider: – Is the juice worth the squeeze? – Regulation By Consent Order

• Your Loan Originators Want to Do Them • Realtors Want You To Do Them

Best Practices For MSAs

• Keep MSA Agreements separate from Desk Rental Agreements. They are not the same

thing. • Establish formal, written approval process for MSAs. • Establish an annual renewal/review process. • Approval should come from non-sales, non-business people. • MSA Agreements should be for a minimum of 12 months. No month-to-month or short

term Agreements. • Use a third party to determine the valuation. • Valuation does not differ by entity. • Document how you determined the fee being paid. • No exclusivity or exclusive arrangements. • Do a monthly on-site audit of MSA provider. • Disclosure of relationship to consumer is a MUST.

Other Important Things to Know About MSAs

• Fee must be for the value of services provided/received. • MSA Agreements should be flat fee Agreements. Fees should not vary month-to-

month. MSAs are not about referrals! • Fees can change providing there is a bona fide business reason. • If a service or services are not performed, then Service Provider should not be paid for

that service or services.

What NAR Has Told Their Realtor Members About MSAs

• DO’s – Be aware that RESPA permits payments for services performed by a broker or agent only

if actual services are performed and the fee is fair market value for the services performed.

– Memorialize an MSA in a written agreement that states in detail the marketing and advertising services to be performed and the fee to be paid in return for such services.

– Ensure that marketing and advertising services identified in a written MSA are, in fact, performed.

– Consider engaging an independent third party to establish the fair market value of the marketing and advertising services.

• DON’T’S – Do not designate a settlement service provider as the broker’s or agent’s “preferred”

company as part of the MSA – Do not enter into exclusive MSAs such that the broker agrees to perform marketing and

advertising services for only one lender or title company. – Do not base the amount of marketing fees on the volume of referrals or success of the

referrals. – Do not enter into an MSA with a company that is an affiliate of the broker or agent.

Thank you!

H. Burton Embry Senior Vice President – Enterprise Risk Management

Primary Residential Mortgage, Inc. 1480 North 2200 West

Salt Lake City, Utah 84116 (801) 596-8707 X-1000201

E-Mail: [email protected]

mailto:[email protected]

We will now take questions for the presenter. If you would like to ask a question, please press the * key followed by the 1 key (*1) on your touch-tone phone now. Questions will be taken in the order

in which they are received. If at any time you would like to remove yourself from the

questioning queue, press *2.

Thank you for joining us today.

Please mark your calendar for our next call which will be held as follows:

July 23, 2015 Time: 11:00 a.m. Pacific

Topic:

Fair Lending, Proposed Changes – What are latest best practices? Presented by:

Loretta Kirkwood, Managing Director,

CrossCheck Compliance, LLC

Documents

Welcome to the California Mortgage Bankers Association’s … · Welcome to the California Mortgage Bankers Association’s Mortgage Quality and Compliance Monthly Webinar June 25,