VT State Law Assignment 2 of 2

Please read the below case study and then place your answers to the multiple choice questions in the Comments Section below.

Manny has been a licensed mortgage broker working for a company called S & L Associates for about a year now. And, over that time, Manny 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 Julia comes to Manny for a mortgage loan. She was referred to him by her real estate agent Patricia—whom Manny has worked with quite a few times.

Manny takes Julia’s application and information, as well as a fee to ensure she gets the lowest possible interest rate. While Julia 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 ends up paying the fee.

After all, Manny explains to her that most people have to pay a lock-in fee to make sure they get the best possible interest rate. And, he is sure that whatever lender they go with will require the fee, anyway, so he is just planning ahead for her. 

With all of her information and the fee in-hand, Manny sends Julia on her way. Before he submits her materials for underwriting, Manny checks it over one more time, just in case anything was left blank.

Sure enough, Manny notices that Julia forgot to enter the amount of time she had been employed as a copy editor. Manny 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.

Manny knows that, given the volume of loans right now, it’s going to be a little tight time-wise submitting Julia’s application and getting the appraisal done, etc., by the projected closing date. So, Manny writes that down for length of employment.

And, with that, it looks to Manny like Julia’s application is ready to submit.

Since he has scheduled a remote hiking trip for the following week, just to make sure things move along smoothly while he is gone, Manny asks his buddy and co-worker Fred to look after Julia’s file. Manny will be out of cell phone range and away from Internet access, so he will feel better knowing Fred’s watching over Julia’s file. In exchange for his help, Manny will pay Fred $200 out of the loan commission – just for keeping Julia’s loan on track.

During Manny’s vacation, Julia mistakenly sends the check intended for the appraiser to Manny. Fred does not notice the check because he is dealing with a licensing issue of his own. Specifically, after fifteen years as mortgage broker, 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 Julia’s loan.

So, after sitting on Manny’s desk for five days, Manny 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, Julia’s loan is approved and they go on to close on time.

And, even though he nearly dropped the ball with the appraisal check, Manny decides to honor his promise to give Fred the $200 bonus for helping out with Julia’s file. After all, Fred really needs the cash right now.

A year later, seeing that interest rates have dropped significantly, Manny contacts Julia about possibly refinancing her mortgage. After two weeks of phone tag, in which Manny lets Julia know that the rates could swing back up, she finally decides to come in and talk about a refinance.

Sure enough, by the time Julia gets in to Manny’s office, the rates aren’t quite as good as they were when he originally contacted her. Even so, after running the numbers, Manny finds that Julia will still save $85 per month on her mortgage payment with the refi! So, Julia 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 Julia paid to get a low interest rate legal?

A.    Possibly, it depends on how Manny records the fee in the application materials.

B.    No, it was entirely illegal. Mortgage brokers are not allowed to collect lock-in fees.

C.   Yes, it was legal, because Manny had enough experience to know that whichever lender they made a loan with would want that fee.

2. Did Manny handle Julia’s omission about her employment length on the application correctly?

A.    Manny broke the law because he negligently allowed Julia to sign a document that had blank spaces.

B.    Manny broke the law because he wrote that down from memory, when he is required to get complete verification before recording such information.

C.   Manny did not break the law because he and Julia had talked about this and, as her broker, the law gives him explicit permission to fill in information such as this when the applicant forgets to do so.

D.   Manny did not break the law because the document Julia signed was not a financial disclosure document.

3. Was the kickback Manny offered his co-worker Fred to watch over Julia’s loan while he was on vacation legal?

A.    The payment could be considered illegal because Manny 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 Manny’s desk for nearly a week. In effect, Fred was being paid a fee for a service that he did not perform.

4. Once he found the appraiser’s check sitting on his desk, did Manny handle the situation correctly and lawfully?

A.    Yes. While the fee did sit with him for a while before getting to its intended payee, Manny 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 Manny (and Fred) failed to do that for nearly a week!

C.   Yes and no. While Manny 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.

5. How many laws did Manny break in contacting Julia about refinancing her loan?

A.    Three – The rates were not the same as what Manny promised Julia 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, Manny was very forthcoming about the fact that the rates were likely to swing back up before Julia finally got in touch with him.

C.   One – Manny contacted Julia about refinancing too soon after closing her original loan.  



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