Points of Interest – Submitted March, 2017
CalBRE Ramping Up Audits of Mortgage Brokers
For the last several years the CalBRE has been concentrating on property management companies for their audits. In fact, last year out of 590 audits statewide, a full 423 were of property management companies. But, so far this year, I have witnessed a dramatic increase in the number of mortgage companies that are getting the dreaded call. The audits of mortgage companies are being triggered by consumer complaints, employee complaints, or directly from the Mortgage Lending Activities section of the CalBRE. Some are investigative in nature (complaint based) and others are routine, proactive audits where the auditee is chosen at random. Want to practically insure that you get an audit? Don’t file your quarterly or annual reports on time!
Once the auditor makes an appointment to meet with you in your office (which from the call to the actual audit can be several days to several weeks), he or she will spend from one day to several weeks (!) in your office going over your files and accounting. Agent files (licenses and contracts), transaction files and accounting records will be thoroughly reviewed. At the end of the field work portion of the audit, the auditor will send you a list of violations (and they will probably find something, since only about 20% of audits result in no violations whatsoever). From there, if there are violations, the auditor will submit the report to their supervisor who, in turn, will send it to “Cite and Fine” or to legal. The results can be anything from 1) a Corrective Action Letter (no fine) to 2) a Cite and Fine (maximum $2500) to 3) an accusation (which requires a hearing or a settlement and big bucks to the CalBRE and to your attorney).
Here are some examples of actual audit findings that would lead to 1) vs 2) vs 3):
1)Corrective Action Letter
The only finding in this case (a one day audit) was the use of digital signatures on the Mortgage Loan Disclosure Statements and the Lender Purchaser Disclosure Statements in the loan files. This is not allowed, as the code states that these forms must be “personally” signed by the broker/agent and the borrower/investor.
After the Corrective Action Letter was received by the Broker, a letter was sent to the CalBRE within 30 days stating that this had been corrected and would not happen going forward. There was no further action and there was no comment posted on the Broker’s personal or Corporate license for the public to see.
2) Cite and Fine
The following violations were discovered in the audit (which lasted six days!) and were deemed serious enough to trigger a Cite and Fine Notice of the maximum allowed $2500 (individual costs of the violations are detailed below):
- Broker used unlicensed fictitious business name. The Corporation name was (for example) Pretend Mortgage and the Broker used the name Pretend Mortgage, Inc. (Fine: $350)
- Broker kept more than $200 of Broker’s funds in trust account. (Fine: $400)
- Broker had analyzed trust accounts with the bank that reduced the fees charged to the accounts without notifying the Broker’s borrowers and investors. (Fine: $350)
- Broker failed to timely file the Mortgage Loan/Trust Deed Annual Report. (Fine: $350)
- Broker failed to timely file Quarterly Threshold Reports. (Fine: $350)
- Broker failed to keep accurate trust accounting reports. (Fine: $350)
- Broker allowed Salesperson who was not listed under the Broker’s license to sign on trust accounts. (Fine: $350)
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