Loan officer advised me that two of his customers were about to partner and purchase shipping containers of trading cards for resale. The customers were looking for ‘a third partner’ and asked loan officer to be the third partner. Loan officer asked if that would be allowed. I advised that if the loan officer participated in the deal as a third partner, he would need to move their existing loan relationship to a different serving officer.

Loan officer closes a loan to the two customers for the purpose of purchasing the cards for resale. There is no reference to his present or future involvement in the loan file.

I overheard the loan officer discussing his participation in the acquisition of cards for resale as a third partner.

I researched and found the closed loan.

Loan officer now advises that he was told by one of the customers that he should make the loan to just the customers and then have his wife buy in 1/3 after the closing. The loan officer asserts there is ‘no paper trail’ tying him to the transaction and, thus, no conflict exists. He likewise asserts that the CEO approved the structure while the two were on the golf course together.

Am I wrong in thinking this is a conflict of interest and the loan officer should not be allowed to continue to be the servicing officer for these customers?

Since this sounds like a venture capital loan unless fully secured by other means, this is the stuff that prohibition orders are made of. Get out your SAR and the LO should get ready to answer questions by the regulators.

Besides Randy's words, what does the ethics, employment policy say? Would the fidelity insurance cover this transaction or would it be prohibited by policy definition?

Code of Conduct:

'Officers must not use their position for private gain, to advance personal interests, or to obtain favors or benefits for themselves, members of their families, or any other individuals, corporations or business entities.'

Loan Policy:

'No loan officer may approve a loan to any entity in which he or a member of his family has an interest, other than a company which securities are publicly traded in which family or individual ownership represents less than 10 percent of total ownership. Loans to
entities owned or controlled by employees or officers or their families shall be approved only after a disclosure of ownership has been made to the Directors’ Loan Committee which shall determine whether or not the possibility of a conflict of interest may exist.

No loan officer shall make a loan directly or indirectly to any person related to him by blood or marriage regardless of the degree of the relationship. This rule applies to partnerships, corporations, or other legal entities.'

So your lender allowed the customer to tell him how to handle the transaction?

If the 2nd Anonymous is the same as the first - you have code of conduct and loan policy violations. This sounds like a mess.

Anon, if you are the original poster, there appears to be a violation to both the code of conduct and loan policy. It would be SAR time, and potentially the loan will be classified by regulators. CEO's acknowledgement - take that with a grain of salt. A lot of things are said on the golf course and if actually discussed, all the details of the transaction might not have been stated.

This sounds like a $hit $how.

SAR, SAR, SAR.

i have an option to purchase a four unit residential apt. building. i plan to assign this option to an individual who I also plan to assist in getting a loan as a mortgage loan officer. if this relationship is disclosed to underwriting is there a conflict of interest? would i still be able to do the loan? Please advise.

IMO, your financial interest in the transaction makes this a conflict of interest.

I agree with InFairness and in addition:


if this relationship is disclosed to underwriting

This statement certainly makes it sounds like you have no intentions of disclosing your interest in the transaction if you think it would prohibit you from acting as the MLO, that IMO is mortgage fraud.