Last time, first in our series Industry Checks & Balances, we addressed the initial basic step that people involved with the origination pipeline need to have a clue about 'What's a Good Loan!' Having that knowledge, keeps the junk loans out of portfolios, and helps to keep the industry safe so you can have a long and successful career in it.

Today, let's look at another Industry Check & Balance that's vital. As an owner of a mortgage company - Big or Small and whether you're a Mortgage Banker or Broker, if you have Loan Officers working for you, than you're probably a bigger Gambler than you may realize! You may know the FBI's reported several times that up to 60% of all industry fraud happens at origination, but there's more ...

As we move deeper into this current industry cycle, and further away from the 'Gold-Rush' days of the last one - you're beginning to see a new paradigm emerging as things change. Generally things are moving in a better direction, and you need to be a part of a smarter way to operate your own company.

Odds are you yourself were raised during the last cycle, that began in August 1998. And, therefore received very little industry education and training, since most employers during that period typically focused on production and sales, and not your long term career. Unfortunately you got short-changed, and now as an owner yourself, you're beginning to see your limited exposure to only sales is hurting you. Sadly anything beyond that which you have learned, has probably been through hit & miss, with a lot of bumps and bruises along the way as many of the non-industry laws and regulations that owners must know have eluded you, in addition to the dozens of lending/real estate ones you do hear about a lot.

If you're like most we encounter at Secret! University and inside many industry discussion boards, then you most likely know every little about the several mortgage laws which effect advertising issues (commercial messages that promote credit transactions requiring disclosures are considered advertisements under Regulation Z. Messages inviting, offering or otherwise announcing generally to prospective customers the availability of credit transactions, whether in visual, oral or print media, are covered by the regulation). Other specific rules for advertising, as established by HUD, are set forth in the Fair Housing Act. Additional advertising rules are contained within Regulation Z (as mentioned above) and ECOA (Regulation B). There are also specific HUD requirements for lenders involved in the origination of FHA-insured loans - plus several non-mortgage laws that also cover advertising issues. For example the FTC regulates a wide range of advertising issues, as does the Business & Professions Code in your State's "good faith and fair dealing" doctrine. Plus, of course, subjects that relate to the Federal Wage & Hour Act alone with the Federal Fair Labor Standards Act along with your own individual State labor laws Employees vs. Independent Contractors, where you most likely violate the above indicated Federal Statutes and your own individual State laws too, by having your LO's operate unlawfully as Independent Contractors.

So, where the big Gamble you say then? Odds are both you and your LO's incorrectly believe it's their principal job duty is to 'bring in customers,' when it's really a customer service/help desk type of a position. So, here's the hazard you're exposed to. Neither of you know all that much about advertising laws and potential violations, since you almost certainly have them focus on production/sales just like you where treated! So, permitting them to 'bring in customers' using their own advertising savvy, exposes your company to future liabilities. Remember, if times get tough, or slow, they can resign - whereas you're stuck there!

I want you to think this through thoroughly (and do the math) without a knee-jerk reaction to the following advise.

Put LO's on "salary" (with a small bonus here and there if you like), and save the tens or hundreds of thousands of dollars annually you won't be paying them 'commissions' and instead spend it on advertising to build up YOUR Company, it's credibility, and cover your own butt against advertising violations. If you like, we can show you how to recruit and hire them, done it this way hundreds of times! You'll get far more bang for your buck this way, and better control over the type and quality of applicants that come to your company... Do The Math.

While we on this subject, it long overdue for you to convert your LO's to "employees" with proper Employment Contracts (where you'll be complying with appropriate labor laws) and you'll also have the protections afforded to Employers - like when they conspired to steal and download trade secrets, to commit fraud in connection with computers; leave and steal your company's property. As 'Employees' if they take customer lists, logs, loan files, other information that are trade secrets to the company, they can be prosecuted federally. The Computer Fraud and Abuse Act (CFAA) (18 U.S.C. §1030) sets forth criminal and civil penalties for the misuse of employer computer data. It can be used to sue departing employees AND their new employer who may ultimately benefit, and IS liable as well!

We want to tweak the odds in your favor, so you can build a solid and enduring business moving forward. One which you can be proud of.

In summary, the move to pay big choking commissions leads directly to the fact that the FBI has repeatedly reported over the last couple of years, 60% of mortgage fraud is done at origination! Greed is a powerful thing and it can Kill Your Company!

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