As published in Scotsman Guide's Commercial Edition, October 2007.
Does the phrase, "Hello, I'm from compliance and I'm here to help," strike terror into your heart? It shouldn't, as long as you've been following the rules.
Compliance is the rule book that defines how we all play the game. We make our living in a highly regulated business. There are federal, state and local laws, as well as rules and regulations to follow. Just about every aspect of our business has at least one governmental entity monitoring it.
Even if your state doesn't require you to be licensed as a commercial broker, you still must comply with applicable laws and rules regarding fair lending, appraisal reports, credit reports, confidentiality and fraud. This compliance is essential for success in the business of financing income property.
The underlying driver behind rules and regulations in this industry is fair lending. Put simply, it's not fair to spend 20 minutes with a drop-in visitor carefully answering each question and generally trying to help and then to dismiss someone else with a curt, "We can't help you."
It's easy to fall into the trap of making up your mind too soon, either positively or negatively, about a potential loan or customer. While there will be times when it becomes obvious right away that there isn't a deal, it's still essential that you provide fair and equal treatment to each applicant.
It will be fatal to your long-term business plan to get in the habit of deciding right away about a loan based on personal opinions or judgments. Every office has a procedure for screening transactions. Follow that procedure until either the loan closes or it becomes evident that it probably never will. If you don't engage in fair and equitable lending practices, there could be serious repercussions down the line.
From time to time, lenders are asked to accept an appraisal report ordered by the loan applicant. The federal regulation is clear on this issue: If the loan applicant ordered the appraisal, a federally regulated lender may not use it -- period.
Yet property-owners keep ordering the reports, and lenders have to keep telling them they can't use them. If you're approached by a client for a purchase or refinance transaction, and the customer says, "I'm going to get this deal started, I'm going to get an appraisal," the first thing you should say is, "No." Say this will essentially be a waste of $2,000 to $5,000.
Mortgages on multifamily properties are subject to the requirements of the Home Mortgage Disclosure Act (HMDA). And there are certain applicant characteristics with regard to race and ethnicity that your borrowers must disclose on the application to comply with HMDA.
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