I was talking to the head of our mortgage "operations" team that oversees all the processors etc. She told me she had concerns about our newest MLO. His latest file was for a realtor he knows, and he apparently counted a bunch of "expected" income from coming closings when trying to qualify her, stating she made $6,000/month. The processor pushed back, calculated the income at $2,500 by Fannie guidelines for commission based businesses averaging 2 years tax returns etc.

Supervisor was brought in, calculated income independant of processor and came up with the same income.

MLO took file to the VP that approves the loans, using his figures and obtained approval to do the loan. Processing supervisor put her foot down and said it needs to be redone and reapproved. He's stalling.

Anyway, it's feeling like loan fraud to me and I'm thinking I need to file. I have no experience with this, and have not filed a loan fraud SAR before, and definitely nothing on an employee. Can I get any thoughts on this?

Unless there is more to the story, I don't see fraud here. Based on the numbers you describe, I'm assuming you've been given genuine tax returns by the borrower. Absent any evidence to the contrary, I'd also be willing to assume that the optimistic forward-looking income projections are based on realistic expectations, given recent upticks in real estate sales. It sounds like your applicant is making an honest presentment of her financial picture.

Your MLO, on the other hand, apparently thinks underwriting policies don't apply to him or to his applicants. It's still not fraud, but it is definitely something management/HR needs to address. And kudos to the processing suervisor for standing firm.

I concur - sounds like your "newest" MLO is headed for a FKA moniker

Based on what I'm seeing, I don't think it's fraud either. The new MLO needs to be brought into check though.

Well that's a relief to hear from everyone.

I'm thinking that because the MLO falsified the income figures to get an approval on a loan, and it would have closed as such if the supervisor hadn't recognized the name and pulled it out of the pile, that we would have closed a fraudulent loan that the borrower didn't qualify for.

If I'm overreaching with the definition, I'm fine with it, I really didn't want to have to file!

Okay, the plot thickens as I collect details.

Mortgage insurance was denied on this loan due to income. MLO presented the file as it being approved. I'm not sure how he expected this to get through closing without having MI approval...obviously he's not a genius. Does this change anything, aside from the fact that he's more clearly trying to screw over us and the borrower?

Just call the applicant and explain that you are sorry, but the MLO that formally worked for you that they were dealing with was short a few cards in their deck and that unfortunately you have to deny their loan request.

The VP approved the corrected file (61% dti, are you kidding me??) as it actually is, and it appears they're not going to worry about it any further.

Keeps the MLO on my radar though, and IA.

If this is typical SOP in your bank, I would be updating my resume......

The bank has a huge fair lending issue on their hands! In a comparative file review regulators minimally look at policies, or procedures, they concentrate on practice. The bank's practice was just set to approve loans to 61%. Hope the bank approves similar rates or if not documents the files why one borrower got it and others were denied for income at lower rates. (That would really hurt the bank if the borrower was a white male and others not given the same opportunity were protected class borrowers!)

"His latest file was for a realtor he knows"


Is the MLO getting business from the Realtor?

If the Realtor is getting something of value from the MLO (a loan that you would not give to a similar customer) Would this be Section 8 violation? (My thoughts only, can a someone chime in?)

PS I am with Randy. Update the resume if this is SOP.

Ed - I agree. This smacks of a Section 8 violation.

My resume is up to date, and I've been keeping my eyes open in recent months. There are far too many situations like this.

Southern Banker: There are reasons in the file, and I hope it gets pulled for an exam because I'd love to see the reaction! "Strong recommendation from employer, on par to double 2012 income" Funny, didn't know we got employer references on our files! She's a single white female.

Ed: The MLO works in the realtor office where the borrower is employed. Without verifying, I'd say it's a safe bet he's getting some business from her. But hey, we do all sorts of personal and business loans with the owners (both realtors) and they suck financially to the point that they've considered bankruptcy several times.

State and federal combined exam is about two weeks away. I had hopes last year they would call us on some of these types of things...but no, a glowing review. I don't know that this year will be any more productive.

You might want to suggest to the EIC on the QT that they look at this loan and do you a favor.

Unless the bank does a lot of lending (at least 5 protected class female denials compared to 20 white female approvals) it most likely will not be picked-up in a comparative file review - HOWEVER - as Randy alluded to, it could be picked-up for ECOA which can have the same effect.

Don't lenders realize that the rules changed in 1989 with Decatur and again in 2009 with the DOJ.

May or may not be closed by the time they get here, who knows.

We've never had a fair lending exam (probably why we're still doing business today!), and we very much still maintain lending mentalities from the 80's, which is funny since the VP wasn't lending back then. But they all think we can do whatever they want. If I get a chance to chat with the EIC, I might offer some opinions. They tend to keep me out of exams though, they know they don't want the compliance person being asked questions! I'll be honest.

ATR is going to be a rude awakening, the first time a borrower claims we shouldn't have lend to them.

Agree with Randy. All you have to say to your EIC is "make sure you include this loan in your sample". And a few others that you know about. No explanations necessary. Your EIC can be your best friend in situations like these.

Thanks all, for your thoughts and opinions. They will be given serious consideration prior to going into our exam.

Okay, so as I was thinking on this last night, some things occurred to me.

The EIC (brother of one of our department heads), and the other guy that's usually here with some level of authority (neighbor and on good personal terms with the lending VP that made the questionable lending decision) are with the state. The state barely knows what "compliance" means and mostly tests other things.

Better off going to the federal team, or not? And do I have any assurance they won't rat me out to management? I've only been through one joint exam before, and as I said, wasn't really involved, so the whole process is a bit mysterious to me still.

If the EIC from the State has a relative at the bank, then I would say that alone is a huge conflict of interest and while management might not complain about it, it is just not right at all. You have two options.

1. I would talk to the Fed's about it and be prepared to leave immediately.

2. Just give up and leave. It sounds like this is a hellish place to work that is going to crater on its own in a short period of time anyway.

I used to work at a bank where when some exam findings mirrored some concerns I raised with management, I was accused of tipping off the examiners.

Does sound like a pretty toxic environment.

The thing that stinks about it is that it's a great environment for everyone else. Working here was great until I took the compliance job and my eyes were opened. We always get good exam results, and there is no interest in changing how we do things until we're forced. We are gifted with some masterful BS artists on the management team though, and they seem to talk themselves out of any and every problem.

If there were other financials in the area hiring, I'd be applying. Just a bit stuck at the moment for various reasons. Oh to be ignorant and happy (and not responsible for anything if/when the hammer falls) again!