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NAMB submits disclosure form to HUD for simplification of settlement process

National Mortgage Professional
Feb 28, 2005

Ask the QC XpertsQC-MACquality control, regulatory compliance, RESPA violations, reverse mortgages Dear QC-MAC: I am a small mortgage banker based in Georgia and I am new to the industry. I plan to open a small real estate company to assist me with point-of-sale contact. Can I function as both the loan officer and real estate agent in the state of Georgia? --Murray W., Atlanta Dear Murray: There are really two answers to your question. If you are speaking of being the real estate sales agent and the loan officer on a conventional loan, the Georgia Department of Banking and Finance state examiners would not have a problem with you working both sides of the transaction as long as you have fully disclosed to the consumer that you are in fact handling both sides of the transaction and are being compensated on both sides as well. You must also give the consumer an option to agree or not to agree. However, if your transaction happens to be a HUD/FHA transaction, it doesn't matter where in the United States you are located because a loan officer is prohibited from working both sides of the transaction, even if the consumer is informed. HUD/FHA regulations Handbook 4060.1 REV-1, CHG-1, Chapter 2, 2-14 states, "All employees of the mortgagee, except receptionists, whether full time or part time, must be employed exclusively by the mortgagee at all times and conduct only the business affairs of the mortgagee during normal business hours. Branch managers must be located at the branch office they manage and cannot operate or be the manager of more than one branch office at the same time." Dear QC-MAC: I am very confused about a practice I see taking place. A large, nationwide wholesale lender is sending flyers to brokers, urging them to do business with them. Their flyers appear to be a blatant violation of RESPA concerning kickbacks. These guys are offering large amounts of money, trips around the world and other gifts enticing brokers to bring their loans to them. How in the world are these guys getting away with this, and why aren't their competitors concerned about their practices? Isn't this a blatant violation of RESPA? --Paul H., Boise, Idaho Dear Paul: You are not the first person who has sent us this flyer. As a matter of fact, this is about the 10th one we have received concerning this same wholesale lender. We never thought about running this question in our article until we received so many, which leads us to believe there must be many of you out there who are misinformed about the rules of RESPA. The reason this wholesaler can offer gifts, trips and referral fees to brokers for bringing them loans is because this wholesaler is selling multifamily (five units and above), commercial and industrial loans. RESPA governs residential loans only--that is, loans secured with mortgages placed on one- to four-family residential property. These loans include most home purchase loans, assumptions, refinances, property improvement loans and equity lines of credit. The HUD office of RESPA and Interstate Land Sales is responsible for enforcing RESPA and, as you can see, multifamily, commercial and industrial loans are exempt. This is why the lender's competitors do not have a problem with their advertising. Dear QC-MAC: Due to the stiff competition of getting business from the real estate community, I have decided to transition into the reverse mortgage business. I was told by a friend of mine who has already made the transition that life is wonderful over there and the grass is much greener. In addition, because there is virtually no qualifying and underwriting involved in the origination of these loans, there is also no need for quality control and compliance. What is your opinion about the reverse mortgage business? --Allen B., Phoenix Dear Allen: I am not sure how long your friend has been in the reverse mortgage business, but I am afraid that he may have misled you on a few things. Regarding the "grass is much greener" statement, we have always been told that if the grass is greener on the other side, most likely it is harder to cut. With that being said, let's talk about qualifying, underwriting and quality control of reverse mortgages. By all means, when you are originating reverse mortgages, there are truly underwriting, qualifying and quality control requirements. Approximately 90 percent of all reverse mortgages made today are HUD/FHA home equity conversion mortgages (HECM). These are HUD/FHA loans and, in our opinion, the qualifying and underwriting requirements of a reverse mortgage are much more difficult than those of a forward mortgage. Here are just a few of the requirements: age qualifications, loan limits and calculation of the principal limit, maximum claim amount, calculation of the payment plans, tenure, term, line of credit and modified tenure. It is also mandatory that the borrower(s) receive counseling by an approved HUD counseling agency. For qualification and underwriting guidelines for HECM loans, we would suggest that you get a copy of HUD Handbook 4235.1 REV-1; and for the quality control requirements of an HECM loan as you mentioned in your question, most brokers do not think that there is a need or requirement to conduct quality control on an HECM loan. Review HUD Handbook 4060.1 REV-1, Change-1 Chapter 6, 6-6, C-1, C, which reads, "The sample must include all FHA programs in which the mortgagee participates including, but not limited to, 203(b), 203(k), 234 and home equity conversion mortgages." You will also find that the quality control requirements for reverse mortgages are the same as they are for forward mortgages. Nothing in this article constitutes legal advice or represents how HUD, RESPA, Fannie Mae, Freddie Mac or any state or federal regulatory body may actually answer your questions. The answers to these questions are based on QC-MAC's professional experience as one of the country's leading quality control companies. If you have a quality control and/or compliance question, contact QC-MAC toll free at (888) HUD-AUDIT or visit www.qcmac.com.
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