Dumb Ways To Die

One slip can ruin your career, so follow the right protocols

Sarah Wolak
Sarah Wolak
Dumb ways to die

Compliance Is Crucial

A surefire way to nip your career in the bud is to skip school. LaDonna Lockard, executive vice president for Utah-based Mortgage Educators & Compliance — a mortgage training, education and regulatory compliance provider — says that the start of 2023 kicked off with a huge compliance issue. “We’re still dealing with the repercussions of the REES (Real Estate Educational Services) Settlement,” Lockard said. “We saw a huge lawsuit where hundreds of MLOs all lied about their NMLS education. Basically, someone was checking off that these loan officers completed their education but they really didn’t take the annual courses.”

Lockard says that this sets off bells and whistles in the LO community, especially if the LOs who cheated attempt to re-establish their careers. “Anyone willing to risk their licenses and livelihoods over eight hours of education … well, y’all probably shouldn’t be doing this anyways,” she said. “There were heavy repercussions, too. Anyone involved in it can no longer take online education between one and three years, depending on each state’s ruling. And several lost their licenses or got put on probation.”

It’s not the first time that the NMLS has cracked down on regulations, Lockard says. “They now have something called BioSig-ID, which is a biometric ID system that NMLS had to put into online courses because they found out that LOs were having others fill out their paperwork,” she explained. “A lot of reputations have been ruined [and] employers will be mindful of those enforcement actions, like what else are you willing to cheat on or do?”

LaDonna Lockard, executive vice president, Mortgage Educators & Compliance 

Anthony Johnson, partner and recently-appointed CEO at Mortgage Educators & Compliance, says that he is “constantly amazed” at the lengths LOs will go to in order to cheat on their education. “It’s in the law that they need eight hours of education, and people will try to send others in their place to complete that,” he said.

Lockard said that when it comes to being compliant, sharing is caring and no information is too much to provide your state NMLS. Lockard says that the concern she usually gets from clients is they feel they’re raising a red flag on themselves. But she tells them that it’s better to disclose than to be sorry. “I had one person who called [us] because they had filed for bankruptcy and kept their license as an LO and claimed that they didn’t know to file [bankruptcy] with the state. And when it came time to renew their license, the state said no. I think the biggest thing that we’re going to see coming up is bankruptcies, foreclosures, and tax liens start to affect people’s licenses in that way. You should always keep the state up to date on any financial changes.”

Reputation Precedes

Getting slapped with a formal discriminatory action will stay on an NMLS profile forever, Lockard says. “Your customers can see this information, whether you have an enforcement action or a cease and desist … it’s all on the NMLS Consumer Access page,” she said. “And even if the state pulls a license, [that person will] always have to disclose if they’ve ever had a professional license revoked if they apply for another professional license.”

Lockard says she’s also seen mortgage loan officers get their licenses pulled for issues that don’t have to do with the NMLS or RESPA. “I know an MLO who got their license taken for having two DUIs,” she said. “I don’t think an enforcement action is a scarlet letter forever. You can recover, but like any public mistake, you’re always going to have to explain it.”

Johnson says that having a regulatory action on your record is something that LOs will have to explain for the rest of their careers. “It’s going to stay with you. There’s not a time frame or process after [an action[ has been implemented where it will be removed,” Johnson said. “You have to face it … And it doesn’t look good if you have multiple marks on your license.”

Compliance is crucial

Considering others’ reputations also has a role, especially when entering into partnerships or co-advertising opportunities, Lockard advised. “If you’re looking into partnerships, do your due diligence and investigate their reputation and how they follow the rules,” she said. “Advertising is another area that people get into a lot of trouble with. If an LO is co-advertising with someone who is a Realtor and there isn’t a firm delineation between their two separate roles, they can get slapped for that.”

Marketing And Money Mishaps

Even though most LOs are eager to advertise their services, marketing and creating relationships are two areas where regulatory mistakes can occur, says Ari Karen, a litigation attorney. He has seen LOs attempt to bend rules to give their referral partners kickbacks. “A lot of people try to ‘get cute’ by skating around RESPA kickback rules,” Karen, a partner and head of litigation for labor and employment law firm Mitchell Sandler, based in Washington, D.C., explained. “It might work with your employer but it isn’t going to fly with the CFPB. There’s also the idea of if other people do it, they can do it, too. Candidly, that will work for a lot of people … if everyone does it, everyone honestly won’t get caught. But what if you’re the ones who do?”

In August, the CFPB fined Freedom Mortgage $1.75 Million for illegal kickbacks. The CFPB said Freedom provided real estate agents and brokers with numerous incentives — including cash payments, paid subscription services, and catered parties — with the understanding they would refer prospective homebuyers to Freedom for mortgage loans.

Social media is another area where LOs can fudge up the boundaries of their contracts. Karen recommends separating business from pleasure, meaning that LOs should consider keeping their business content out of their personal content, and vice versa. “When you’re inviting business people intentionally into your personal sites, anything you say can affect you from a regulatory or professional standpoint and affect your relationship with your realtors or customers,” Karen explained. “You may alienate a whole group of borrowers.”

Ari Karen, litigation attorney

Karen says that another thing that LOs need to consider is how they leave their employers. “A lot of people can violate regulations when leaving their company for another. For example, if they start working for someone else while still holding a job with their initial employer,” Karen said. “They can’t download any borrower or loan information, and they can’t solicit employees.”

Karen says that careless LO practices tend to snowball into larger issues. Another job-related mistake Karen sees is LOs who quickly sign on with a company they really know nothing about. “Another [issue] is not carefully reading agreements. I see situations where an MLO will sign with a sign-on bonus of, say, $100,000 but the contract says if they leave even one day before the bonus is owed, they owe back that money. And of course, they don’t want to pay it, which creates more issues,” he said.

Another mistake? Chasing those big sign-on bonuses without checking the company’s culture or reputation. “They didn’t look at the pricing or beyond the bonus,” Karen said. “The same goes for when a lead-based LO goes to a retail space where it’s more relationship-based. Or if they’re working for companies that have issues with compliance. They’re usually not long-term players … they do really well for a bit and then go away. Having a long-term career view is important so it’s important to be cognizant of that.”

Sarah Wolak
Sarah Wolak,
Staff Writer
This article was originally published in the NMP Magazine October 2023 issue.
Published on
Sep 27, 2023
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